Course Textbook


Since the creation of the Bank of Amsterdam in the seventeenth century, monetary instruments and governments have been linked to each other. But in the digital age, money and state don't necessarily mix anymore. To many, the entire concept of government money is becoming obsolete as the rise of Bitcoin bellows in antithesis. Because Bitcoin is software, mathematics, and speech, it should be considered a human right. Bitcoin embodies freedom of currency denomination because it gives people the ability to denominate their earnings and savings away from government association. Whether people have changed their unit of account to BTC from their local currencies because of political ideals, nonviolent protest, or a belief that technology enables a novel form of money, they are naturally endowed with the freedom to choose how the fruits of their labor are measured. Bitcoin gives people around the world the first genuine alter- native to their national currencies, a trend which is impossible to reverse now that over 100 million people own it globally.

A Vision of the Future

Here's an outline of how our monetary future might play out in the context of layered money. Today, central banks employ trading desks in order to buy and sell their currency in the foreign exchange market in hopes to maintain exchange rate stability. In the near future, they'll add BTC trading capabilities to their open market operations in hopes to guide their digital currency's exchange rate in BTC terms.

Bitcoin has caused a seismic shift in the monetary balance of power away from governments, even as central bank digital currencies wait in the wings. China will launch its CBDC in preparation for the 2022 Winter Olympics. The European Central Bank, Federal Reserve, and other major central banks will be testing CBDCs by then and will follow with launches of their own.

Banks will issue stablecoins that off er advantages to holding CBDCs, such as higher interest rates or cash-back membership benefits. If friction is minimal when trading between one digital currency and another thanks to atomic swaps, the stablecoin universe will thrive as the source of credit elasticity, or lending. Banks will issue loans, record them as assets on their balance sheet, and issue stablecoins instead of deposits as liabilities. Banks can dramatically increase transparency and rejuvenate trustworthiness by using DLT, and transition to a dynamic balance sheet that allows the investing public to see live capital ratios instead of heavily window-dressed static quarterly reporting. In order to join the monetary order of the future, banks must issue stablecoins that are atomically swappable with other stablecoins, CBDCs, and BTC.  Banks will become masters of the atomic swap, making markets between digital currencies in order to pursue arbitrage and generate profit. With atomic swaps and instant settlement between digital currencies, a path forward exists for the transition to a Bitcoin-anchored monetary system.

Governments and corporations around the world will purchase BTC and hold it as a cash reserve because it reduces reliance on the current dollar system, indicating that the era of global dollar denomination is eroding in the direction of cryptocurrency, instead of any other government currency like the renminbi or euro. Gold will continue to serve as a trusted neutral money, but it has no realistic capability to serve as the rails for a digital financial system. This is not to dismiss gold as the best form of counterparty-free money the world has ever known: Bitcoin has only captured 6% of gold's total world- wide market value. Furthermore, gold's international monetary role has returned with a vengeance since 2007; central banks around the world have increased gold asset holdings dramatically as a hedge to the dollar system's instability and fragility. Gold is considered an insurance on monetary disorder and disarray, one that tends to work best during earth- quakes in the dollar pyramid. But gold's physicality falls short in a digital world where Bitcoin thrives. Eventually, Bitcoin will likely replace gold as the most desired neutral money and exceed it in total market value.

For the public, all money will be digital tokens that will be held in digital wallets. People will simultaneously hold an assortment of currencies: BTC for a neutrality, CBDCs for paying taxes and collecting benefits, and stablecoins for earning interest. Many will rely on second-layer CBDCs and do away with third-layer bank deposits altogether. A growing number of people will survive exclusively on non- government cryptocurrencies like BTC and never subject themselves to counterparty risk.

Money of Choice

Our multipolar world is looking for a monetary rebirth, and Bitcoin offers exactly that. Countries will resist, and some central bankers and politicians will succeed at keeping Bitcoin out of their countries because it threatens their power. But freedom of currency denomination will eventually emerge, whether it comes from banking havens in Europe, off shore money centers in the Caribbean, or the United States of America itself. Gone will be the days when an individual only uses the currency of the country where he or she resides. No currency in the digital realm will ever be able to prove itself as resistant to corruption as BTC, wherein trans- actions once confirmed are impossible to override, making Bitcoin the ultimate tool of financial freedom anywhere in the world. Bitcoin is where the Internet collides with money to bring about change in the same transformative way it did with communication and commerce.

Looking back at Bitcoin's origin through a layered lens, we can see that a new first-layer money had been invented. It was something the world desperately needed, and we are only beginning to understand its impact. In the future, the currency you use will not merely reflect your birthplace or country of residence, but your preferences. Use this map of layered money to emancipate yourself from the boundaries of traditional finance and explore a world of currencies without geographical confinements. Reference the layered money design to see exactly where your money exists in the monetary landscape and empower yourself to achieve freedom of currency denomination by navigating toward your money of choice.