iamjvn (1)
A Peer-to-Peer Workflow Comes Full Circle
by @jvn_xyz, 9/18/22
GM fren,
The IAMJVN report is your monthly read-in. If you choose to continue, you’re proceeding at your own risk. The further you read, the clearer a path toward a decentralized lifestyle encompassing, among other things, the self-custody of your assets and money.
Further, into the series, there will be more subjects and opportunities to decentralize and protect your data and become what Lord William Rees-Mogg and James Dale Davidson termed — the Sovereign Individual. (NFA, DYOR)
Framing the Peer-to-Peer Solution
As civilization crosses the proverbial Rubicon, embracing what Klaus Schwab coined the Fourth Industrial Revolution, a place where Artificial Intelligence, known or unknown, dominates our daily interactions and the great social equalizer called the blockchain keeps corporations and their machinations in check, it’s essential to review the signposts along the way and ensure we highlight and educate our friends and family about the importance of those markers. From Aristotle’s theory of money to the financial and technological innovations of Florence, the United Dutch Republic, and Sweden, in the West through the Song and Tang Dynasties of Imperial China, the only constant is change, an evolution beyond the now.
Over the centuries, whether through financial or technological innovation, or a combination of the two, change proved inevitable, but it was an underlying inertia called globalism, as evidenced through the Florentine Renaissance, and amplified by Dutch and Nordic banking practices that confirmed their entanglement. This unintended collision wasn’t an elaborate market strategy developed by some unscrupulous deviant locked away in his medieval castle but rather borne from humanity’s innate sense of community and survival. As wild dogs learned following, staying close, and befriending humans meant consistent meals, humans learned the mental and economic advantages of physical communities.
Rising from the foundations of these collective communities came medieval cities, which in the West gave rise to fiefdoms and states rising and falling under either papal or monarchal rule, the original dueling political powers in the West. Over the centuries, the organic growth of these population centers demanded yet more innovation to deal with the increased transactional frequency of commerce and trade. These evolutions and interactions marked the rise of globalism. A grassroots phenomenon calling out from within every transaction recorded and every prosperous commercial enterprise, heralding the beginning of the end for the reluctant and less adaptable Imperial dynasties of China and Spain.
“Knowing ignorance is strength. Ignoring knowledge is sickness.” — Laozi.
Expanding beyond the state and across continents, ancient and medieval trade fueled globalism spreading practices and innovations through merchant caravans and marketplaces. Whether it was along the Silk Road stretching out from Han dynasty China into Central Asia or the English and Dutch East Indian Companies’ fevered rush toward the riches of the East, securing a technological advantage mattered.
After centuries of economic and technological advancement, banking and commercial innovation in the twenty-first century have stagnated while the costs and complexities of transactions have increased. The excessive pricing, invasive data collection, and deployment of products to increase profits yet fail to improve the user experience calls into question the necessity of the centralized system’s — middleman.
Disrupting this antiquated value transfer ecosystem, which rose from barter and direct exchange through various mediums, or money, into present-day cryptocurrency technologies that lay out a secured, immutable, and finite money supply systems, financial liberation had turned the corner. An ascension that was only possible after dozens of mathematicians wrestled with ways to solve the Byzantine General’s Problem, a distributed computing scenario that, if solved, could transform the modern monetary exchange system.
The Byzantine problem was solved in 2009 by Satoshi Nakamoto, effectively antiquating the double-entry ledger with the publication of his white paper: Bitcoin: A Peer-to-Peer Electronic Cash System. The distributed ledger solution completed a journey from barter through the medium of exchange to Peer-to-Peer (P2P) exchange, completing the circle.
Barter, exchange, and trade. What’s the purpose? What’s the historical connection? Why has the emergence of distributed ledger technology, a trustless solution, upended the value transfer ecosystem? Are the rise of automation and distributed ledgers heralding the end of civilization or the beginning of a new and more prosperous one?
A Technology Shift: Centralization vs. Decentralization
According to historical documents, the advent of writing in Mesopotamia around 3200 B.C. enabled a form of record keeping known as pictographic bookkeeping. This wasn’t the first step toward a centralized monetary technology (see. Tokens), but it was the first written form of bookkeeping.
From this point forward, globalism piggybacked on every transaction of global trade shifting into high gear, recording and gauging more accurate accounting for each participant, enhancing their fortunes across cultures and continents. Putting it another way, it was the single-entry bookkeeping system that spawned the modern ledger.
Over time, the barter system, which had enabled humanity to come together in commerce and trade, developed into fixed physical communities and marketplaces. The rise of these marketplaces demanded innovation to handle the transaction volume rising with the population and outside interactions. The historical record of bookkeeping proved the history of financial innovation was tantamount to humanity’s evolution, highlighted in the following stages:
1.) Single-Entry Pictographic Bookkeeping/Ledger,
2.) Double-Entry Bookkeeping/Ledger, and
3.) Triple-Entry Bookkeeping/Distributed Ledger Technology.
Single-Entry Bookkeeping / Pictographic Ledger:
1.) a pictographic description of the purpose of transaction/allotment;
2.) the signature of an official, proving authorization of transaction; and
3.) a dating system, specifying date and duration.
Double-Entry Bookkeeping or Double-Entry Ledger:
As historians have noted, the double-entry ledger practiced by Florentine merchants began around 1340. This method not only changed the face of Florence but the world. It not only tidied up the bookkeeping but provided a look at “creditworthiness” that amplified and expanded growth and strategic plans for the savvy merchant. The method simply called for two-sided inputs to maintain financial information and boiled down to a simple equation: Capital = Liabilities + Assets; or Assets = Liabilities + Equity.
Triple-Entry Bookkeeping or Distributed Ledger Technology (DLT):
After centuries of double-entry bookkeeping, and although not the first person to theorize about Triple-Entry Bookkeeping (Ian Grigg), it was Satoshi Nakamoto’s Proof-of-Work solution published on January 9, 2009, that solved the Byzantine General’s Problem, creating the world’s first blockchain. Understanding the blockchain runs through understanding the underlying technology called a distributed ledger. Distributed Ledger Technology (DLT) refers to the technological infrastructure and protocols that allows simultaneous access, validation, and record updating in an immutable manner across a network that’s spread across multiple entities or locations. This Proof-of-Work consensus mechanism was the backbone of humanity’s coming full circle on Peer-to-Peer (P2P) monetary exchange.
An Ideological Rift: Imperial vs. Modern World
As the Imperial houses of China and Spain held fast to their centralized commodity-based monetary systems, globalism meandered through trade routes and merchant houses, the intangible momentum continued calling out from every recorded transaction and every prosperous enterprise, closing in on the precious metal maximalists.
“The idea that money was really about credit, not metal, never quite caught on in Madrid.” — Niall Ferguson (The Ascent of Money)
Across the Mediterranean from Spain, another group of bankers took a different approach, embracing the idea of credit and building empires, but it was the Medici banking family that elevated the practice of double-entry bookkeeping to another level. Leveraging the new and expansive ways of accounting they expanded their branches, took on more clients, and shared their profits with their employees.
By identifying the “creditworthiness” of their clients, the Medici Bank lent larger sums to an increased number of clients, keeping only the most promising accounts active, which resulted in higher returns and acted as an early form of risk management. As painters and sculptors wielded their brushes and chisels, the Medici bankers wielded credit financing, championing a financial innovation that changed the face of global banking and hence the value transfer ecosystem forever.
Emerging from the Middle Ages, globalism switched gears yet again during the 16th century through various calamities that befell the precious metal maximalists of China and Spain, portending the inevitable end of their commodity-based money. It was during the early 17th century that the next stage of financial innovation and metamorphosis of value exchange emerged. In 1609, the Dutch established the Wisselbank, the first public bank not to offer deposits convertible to coins, serving as an active currency trading house defending the coinage standard. Later, in the same century, the Stockholm Banco was founded in 1657 and issued the Western world’s first “bank notes” to address the problem of metal as a currency.
A top-down look at potential factors responsible for ushering in the Renaissance and Age of Discovery in Europe, and thereby shifting the balance of power away from the commodity-based monetary systems of Imperial Spain and China included, but were not limited to:
1.) double-entry bookkeeping system, as well as the “credit” system in the 1300s;
2.) a ‘price revolution’ that through trade routes had a global reach; and
3.) the 16th-century shift toward gold from silver by Western countries.
Double-Entry Bookkeeping, and Credit:
The arrival of the double-entry bookkeeping system in 14th-century Florence created an ability to identify the “creditworthiness” of existing and potential clients, prompting monumental change. Bankers and merchants armed with a wealth of new information and analysis were able to evolve and expand their businesses, which has continued through the modern value transfer ecosystem.
Meanwhile, in Ming dynasty China (1368 –1644), instead of constructing a new monetary system that embraced expansionary opportunities, the emperors turned inward, encouraging self-sufficient rural communities. Their steadfast embrace of silver and commodity-based money, like its European counterpart Imperial Spain, sealed its fate.
…although China’s monetary history included a number of financial organs such as pawn shops, silver shops, and local private banks it took a long time for China to develop a modern banking system… — Jin Xu (Empire of Silver)
The ‘Price Revolution’ of 1540s–1640s:
After expending numerous resources, the search, recovery, and delivery of silver from the Americas failed to ensure Imperial Spain’s European dominance. Moreover, the excessive mining of silver to fund the campaigns and export to the Chinese backfired during the 1500s.
Instead of increasing their wealth, as the Imperial Spanish Court had schemed, the over-supply of silver in a commodity-based monetary system had an adverse effect and sparked a rise in food prices by one to two percent, according to some accounts. Further, the negative effect of silver as a money was not contained to Europe, reaching across continents into Ming dynasty China.
“During the so-called ‘price revolution’, which affected all of Europe from the 1540s to the 1640s, the cost of food — which had shown no sustained upward trend for three hundred years — rose markedly.” — Niall Ferguson
Once the Spanish cut off the silver supply to Ming dynasty China, an underlying restlessness reverberated across the empire, weakening the Imperial Court and its emperor.
European Economies Shift from Silver to Gold:
If not the final blow, a major shift in European banking and trading circles proved a major blow for the precious metal maximalists China and Spain that had based their economies and value transfer payment systems around silver.
For Imperial China, the downfall of silver cut deeper than Spain because although the bulk of Spanish wealth was in silver, they also possessed a healthy amount of gold. Despite also holding gold, Ming dynasty China, whose people had inherited the thirst for silver down through the ages, was at a loss when the silver imports came to a halt.
…up until the 1830s, China retained silver as its currency through wars large and small and countless catastrophes, both tael silver and silver coins were in common use. — Jin Xu (Empire of Silver)
On the streets of Ming dynasty China, silver reigned supreme, given its place in history as a store of value and transferability. Despite several attempts in antiquity to ban the commodity and move to other value transfer payment systems, silver retained its value in the faith of the people. Unfortunately, this type of thinking and miscalculation of the impact of globalism, along with their inability to secure credit doomed Chinese merchants.
Squaring the Circle
As the Imperial Courts of the Middle Ages discovered, failure to adopt financial and technological shifts driven by the unseen globalism led them to repeatedly attempt to square the circle, which all mathematicians know is an impossible task.
From the Spanish attempts to mine more silver to address their need for money to the Ming dynasty’s failed ban on the use of silver as money, these inabilities to recognize the knock-on effects of their commodity-based monetary systems sealed their fate.
Embracing these changes, the European merchant class in the Late Middle Ages reshaped the global power structure, waving in a cultural appreciation of the Arts and a political changing of the guard as they usurped monarch and papal power through the control of credit.
Once the power of the direct exchange shifted from the individuals to a medium of exchange for goods and services (money), it proved centuries until the ingenuity of the people rose to reclaim direct access. During that time, countless institutional innovations improved and expanded economies and markets while raising populations out of poverty. A persistent and unseen fabric connecting and joining these innovations and exchanges was globalism feeding its insatiable thirst for expansion. The centralization of money was invaluable for humanity’s ascension in culture and trade, which connected local and remote markets through endless networks of roads and sea lanes.
Conclusion
Congratulations, you’ve completed your first read-in. Did it make sense? Do you have more questions? I’ve listed some books below that may help you on your journey. This is by no means an exhaustive list, but something to help you get started, set a foundation for what is further down the rabbit hole.
Our path to decentralization is long and nuanced, but an essential part of our transition into a fully digital society. For me, that transition doesn't mean the end of governments, it means the end of corporate lobbyists and carte blanche data collection, and their attempts to direct my attention to THEIR ideal path.
-jvn
#Decentralization; #Self-Custody
— If it’s not in your wallet, it’s not your crypto. —
Disclaimer: NFA (Not Financial Advice), and DYOR (Do Your Own Research)
Suggested Readings:
Bostrom, Nick; Superintelligence: Pathways, Dangers, Strategies; (London, ©2014). https://nickbostrom.com
Ferguson, Niall; The Ascent of Money: A Financial History of the World; (New York, ©2008). https://www.niallferguson.com/
Greider, William; Secrets of the Temple: How the Federal Reserve Runs the Country; (New York, ©1987).
Lebor, Adam; The Tower of Basel; (London, ©2014). https://adamlebor.com/non-fiction/
Spence, Jonathan D.; The Search for Modern China; (New York, ©1990). https://wwnorton.com/books/9780393934519
William Rees-Mogg and James Dale Davidson; The Sovereign Individual; (New York, ©1997, 1999).
Xu, Jin; Empire of Silver; (Taipei, © 2018)