Maybe, instead of asking “why should Venezuela use Dash ?”, the question should be “why should Venezuela use cash ?”.
I’ve been thinking about this quite a bit lately and come up with some thoughts.
Basically, crypto is a synthesised monetary asset. As such the successful ones should be based on some kind of real world archetype that’s already known to work. There are in fact very few, of these namely:
- monetary metals
- credit (account based money)
- vertical tokens (sector specific e.g. BitTube, Steem etc)
Those are the pure monetary ones that hold everything else up (see “Exter’s pyramid” – scroll down). In addition we can add a couple more to cover the smart-chains:
- computing platforms
- settlement vehicles
Characteristics of money
Let those be 1 dimension of analysis by which we can categorize every asset on coinmarketcap.com (i.e. we can work back to the archetype by observing each synthetic asset’s design parameters). Now lets overlay those groups (at least the tokenised form of each asset) with the 3 primary use cases of money which will effectively give us 21 potential “hard” categories:
- store of value
- means of exchange
- unit of account
Most monetary commodities & assets fulfil almost exclusively the “store of value” use case. e.g. Gold bars, silver coins, stamps, fine art. None of these find significant use nowadays as either a means of exchange or a unit of account.
Meanwhile, the credit money of the fiat system finds use EXCLUSIVELY as a unit of account. There is no commodity associated with it any longer, even though they linger on in the currency titles (“Sterling”, “Peso”, “Dollar” etc). It’s simply an arbitrary unit for denominating quantities of credit.
Cash and vertical (market specific) tokens are the only ones that function as all 3. Store of value, means of exchange and unit of account. That is one reason why “regular folks” may want to use cash – because it’s something they can spend, hold, value costs with and that doesn’t loose its value.
Now lets look at the various archetypes themselves and their significant characteristics which ideally need to be carried forward into their synthetic counterparts. To do this we need to have recourse to the age-old acknowledged characteristics of money and see how each archetype gives priority to distinct monetary properties to deliver its optimal “service”.
- 1. Monetary assets:
We already observed that these operate primarily in the store-of-value role. So fungibility, mobility and divisibility are de-prioritised in favour of scarcity and durability. This is the case, for example with gold nuggets, fine art, diamonds and even (nowadays) metal coins – since these are generally only fungible within a particular family (for example canadian maples). There is fungibility to a degree because metals can be melted down to erase their historical form and take up another.
Within the cryptocurrency class, bitcoin certainly follows this archetype very well. Its blocktime corresponds to its exchange time – a reasonable one for such an asset class. It is also divisible and has enough fungibility to function well as a monetary asset without de-prioritising its main role – that of storing value.
Significantly, this class can serve as a “backing” for derivative vehicles. For example when we put our money in the bank, a “derivative” form of it appears as a digital balance in our bank account which can then be transferred to someone else’s account without them actually having to be present in order to receive the exchange in person.
- 2. Cash
Cash ideally inherits all of the store-of-value attributes from the previous monetary asset class, but places a much higher priority on 3 of the above properties:
In addition, when we look at how cash operates in the real world, we can also see 2 further aspects that characterise that archetype, and show us how those monetary properties are supported:
- immediacy of exchange
- transparency of the medium (the “notes” can be inspected by both/all parties)
- continuous supply recycling
The last of these works by consolidating coins and notes in the cash drawers of merchants (mixing
inputs from different customers) and then again at banking branches (mixing inputs from different merchants) before being redistributed into circulation.
One other significant aspect of cash, is that its value coincides with the medium. What I mean by that is that the value is in the actual token being exchanged and not somewhere else, so by definition, the authentic archetype excludes account-based trading.
3. Vertical Tokens
I’ll leave these aside for the moment as they only apply to specific commercial markets. In Tom Luongo’s article above he refers to these as “utility tokens”.I
Given than bitcoin was the reference implementation for a “reasonably” fungible, mobile and divisible synthetic monetary asset, the question then arises of how to evolve this archetype into an authentic implementation of cash. Given that the transparency requirement is already met by bitcoin (all parties can see the same blockchain attributes), we need to meet 3 additional archetypal requirements:
- the “immediacy” of the exchange
- the supply recycling model
- the native medium requirement (no account based trading)
ALL of these three are an issue for blockchains. First of all, blockchains work in blocktime, not realtime so there is no inherent support for instant transfers. Nor do they have any native mixing features in the standard bitcoin implementation – mixing is purely organic arising from use. Finally, the requirement that even small transactions be carried out using the base money supply gives them a technical scaling challenge that the other asset classes don’t have (since they can benefit from account based trading).
There are only 3 ways to solve the “immediacy” requirement in a blockchain:
- tighten up the blocktime so its approaches zero
- use the mempool and consider such transactions secure enough
- decouple the blockchain protocol on-chain so it has 2-tiers: one that functions in blocktime and the other that can function in realtime
The first two of these solutions are clearly not very satisfactory since 1 is in conflict with the integrity of the mining protocol and the other is in conflict with the double-spend risk.
However, what’s interesting about the third of these is that the decoupled protocol can ALSO address the supply recycling (mixing) requirement of the archetype – and this is the course that Dash has taken.
So we can conclusively make the case that Dash – being the first in the world of masternode oriented, pure currency, mined chains – qualifies as an original in a distinct class of synthetic assets. It authentically implements the key aspects of the cash archetype in a way that its “competitors” (I don’t include Bitcoin in that group but, say Litecoin, BCH, Doge etc) do not.
IMO we need to therefore refer BACK to the archetype for the use cases. Why do/did people use cash ? (As distinct from credit/debit cards). How do they get it ? Where do they spend it ?
If we go back a bit in time, cash was metal coins so it held its value in addition to being a transactional medium. Getting it into people’s hands easily is therefore a major milestone to reach. Some other way than exchanges hopefully.