An Introduction To The Satoshi Papers
In The Satoshi Papers, we begin a multifaceted exploration of how monetary institutions in particular contribute to or militate against the flourishing of human societies. The essays in this volume review the nature of money, the history and functions of central banking, the relationship between state financing and war, and the introduction of Bitcoin as a new platform for transacting value. The authors are in broad agreement that the advent of a global, politically neutral, nonstate, peer-to-peer sound money is not a prescription for the replacement of all other forms of money; rather, it transforms some of the background assumptions about the relationship between states, societies, and individuals that have suffered from an authoritarian consensus in recent decades. Quite simply, there was a world before Bitcoin, and there is a world after it. If politics is the art of the possible, as certain proponents of realpolitik have argued, then the domain in which that art is practiced has now been re-formed.
The global adoption of Bitcoin is occurring in a world transitioning through the obsolescence of unipolar power, which effectively organized much of the second half of the twentieth century. The twenty-first century is giving rise to an increasingly multipolar world in which sovereign actors vie to implement their own political projects propelled by a nexus of commodity wealth, industrial power, and technological innovation. This does not preclude the United States from championing and exerting its power as a jurisdictional base for industrial production and unfettered invention. Indeed, the United States would be wise to embrace the possibilities afforded by sound money—as a reserve asset, as a new basis for private capital accumulation and investment, and as a denominator of value—and to resolve to lead the world in its adoption and institutionalization. This is the case made clearly by Avik Roy in his contribution to The Satoshi Papers, “Then They Fight You.”
But embracing any form of sound money has predictably led to fierce resistance from state actors who view it—correctly—as a potential constraint on state spending. As Josh Hendrickson demonstrates in his essay, “The Treasury Standard,” the adoption of the US dollar as the global reserve currency and the US Treasury as the global reserve asset was part of an uncoordinated yet decisive strategy by generations of leaders within the US government to finance large-scale, open-ended military conflict. This created a global financial system in which the sovereign debt of the United States functions as the main reserve asset for countries around the world, effectively bankrolling unlimited spending by the US government. Sarah Kreps argues in her essay, “Easy Money, Easy Wars?,” that this has decoupled warmaking from taxation—and therefore from the democratic process. Philosopher Immanuel Kant’s prediction that democracies would be less likely to make war than countries with authoritarian systems of government has therefore been disproven in a manner that he and his eighteenth-century contemporaries—including the founders of the United States—could not foresee. Kreps proposes that the US government move to a bitcoin standard in part to make war expensive again and thereby to adjust the incentives that motivate states and the populations that fund them to make war.
In his essay, “Bitcoin and Credit,” Jack Watt makes a similar case for the private banking industry: He argues that the elimination of both sound money and reserve requirements for lending institutions has resulted in an unsustainable explosion of illusory credit that not only drives inflation worldwide but is destined to collapse as populations discover that their alleged money substitutes—bank-issued money—are not, in fact, redeemable for base money, or real money. He further suggests that bitcoin’s capacity to be self-custodied by its owners will, over time, shrink the amount of money people deposit in banks, lowering banks’ capacity to lend. Although this will result in a contraction of the banking industry, it will also give rise to a proliferation of short-term credit instruments that are directly redeemable for base money. This much-needed correction—in some ways, a return to older forms of banking—will ensure that credit is deployed toward economically valuable ends that result in more sustainable and disciplined growth overall.
Some countries have already openly welcomed the reality of bitcoin as a currency and payment system alongside traditional fiat currencies and legacy payment rails. One such country, Argentina, recently elected a president, Javier Milei, who has given legal protection to contracts denominated in any currency, including bitcoin, and pledged to abolish the country’s central bank. Leopoldo Bebchuk traces the history of Milei’s commitments by critically examining the mixed legacy of the Central Bank of Argentina for the Argentinian people. In particular, he demonstrates that the central bank has proven helpless to prevent the significant devaluation of Argentinian currency, year after year, decade after decade. In the process, generations of Argentinians have seen their wealth and savings destroyed, with the result that most Argentinians able to do so currently save in a foreign currency (the US dollar). Bebchuk examines the potential for bitcoin to serve as another store of value alongside the dollar and asks whether central banks can indeed fulfill the mandates of currency stability and sound credit provision that drove their establishment during the European Middle Ages and early modern period.
Just as bitcoin has automated the issuance and verifiable transfer of money without involving central banks, so can it leverage its control of funds to enforce legal or normative social judgments without involving a court system. Aaron Daniel shows how efforts to implement dispute resolution without a state—like eBay’s Community Court in India, the Mobile Jerga initiative in Afghanistan, the Benoam property damage claims resolution system in Israel, or the Próspera Arbitration Center in Honduras—have relied on centralized entities to manage and disburse the funds awarded in disputes, ultimately depending on courts to coerce compliance with those award decisions. Such centralized systems can only persist so long as the communities using them hold extremely high trust in the integrity of the authorities overseeing the control and disbursal of funds. Bitcoin’s programmability, by contrast, allows its protocol to connect to resolutions produced by any off-chain online dispute resolution (ODR) system, no matter how large or small, anywhere in the world. This enables bitcoin transactions to function as noncustodial escrow, only releasing funds upon the issuance of a decision by an online dispute resolution system. Using Bitcoin for such a system could help close what some legal scholars have called “the justice gap” between those who can afford to legally defend themselves and those who cannot, and between those who live under a reasonably well-functioning legal system and those who face a deficit or absence of legal protection.
The ability of individuals to privately contract and economically transact without the intervention of the state is a cornerstone of any free market system and free society. This principle served as a guiding light for the cypherpunk movement, a group of technologists who foresaw during the 1980s and 1990s that the digitization of public and commercial services via the internet opened up significant new vectors of domination for both governments and corporations. The cypherpunks recognized that if strong cryptography was not used to secure communications and economic transactions, people everywhere would be easily surveilled and controlled. As a result, they dedicated themselves to building strong encryption standards and protocols for censorship-resistant, peer-to-peer digital cash.
Satoshi Nakamoto, a pseudonymous developer, was the first to synthesize decades of achievements in these areas to create a workable internet money in the form of Bitcoin. Andrew Bailey and Craig Warmke trace the history of Bitcoin’s adoption after its release by Nakamoto. They show that he first seeded his invention with the groups most likely to use it for its peer-to-peer and censorship-resistant properties—the cypherpunks and the P2P Foundation—while betting on the greed of speculators to scale its adoption to a much wider user base. Ultimately, however, it was Nakamoto’s stepping aside entirely from the Bitcoin project that enabled it to realize its promise as a decentralized digital monetary system. Bailey and Warmke also examine the adoption of new monies from a game-theoretic perspective, explaining how a currency does not have to gain universal acceptance in order to function as a viable medium of exchange. In the process, they suggest that different types of monies can be useful for different purposes, appealing to certain kinds of users for specific use cases.
This leads us to an overarching question: What is money? Natalie Smolenski examines several leading anthropological and economic theories of money to propose a definition that can serve as a point of departure for both disciplines: Money is the cheapest valuable that reliably satisfies creditors in a given market. In other words, creditor satisfaction is the purpose and function of money. Satisfaction is a moral sentiment before it is a legal or technological process: It is the creditor’s psychological acceptance that the debt they believe is owed to them has been paid. Money is only one way of satisfying creditors, however; creditors may also demand or take satisfaction through social processes of apology and reparation, social ostracism, transfer of nonmonetary assets, and ultimately violence, which includes institutions such as the blood feud, vendetta, revolution, and war. By serving as a method for reliably satisfying creditors, money therefore significantly lowers the costs of transacting—not only by solving the problem of the double coincidence of wants, which economists have amply described, but by dramatically lowering the probability of violence in economic exchange. Crucially, however, not every money will satisfy creditors to the same extent in every social setting and for every type of transaction. Accordingly, different markets evolve different types of money that are both valuable enough to satisfy creditors and cheap enough to be produced and used repeatedly and at scale. This explains the chimerical nature of money as a cheap, reproducible valuable.
The essays in The Satoshi Papers are works of political theory, history, economics, anthropology, and philosophy. In times of crisis and upheaval, when the concepts through which the world has been understood are actively shifting, our first imperative is to think. This volume gathers together inquiries from across disciplines to clarify what is at stake and what distinctions will enable us to skillfully navigate our era of profound transition. We hope these essays will serve as invitations to think further—to build a community of good faith interlocutors participating in the shared project of transforming science into new tradition, enabling a self-sovereign future for humanity at large.
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