TWEETSTORM is an occasional feature on decentralize.today where we share threads , mostly from Twitter, that we think deserve a wider audience, some are informative, some educational, some amusing and others yet are controversial...we dig these out for you so you don't have to!

DT Context: A little knowledge in the wrong hands can be a dangerous thing! Level 39 takes issue with recent senate hearings!

Level39@level39

1) Actor @ben_mckenzie's written testimony to @SenateBanking said “#Bitcoin cannot work as a medium of exchange because it cannot scale.

"The Bitcoin network can only process 5 to 7 transactions a second. By comparison Visa can handle tens of thousands.”

Here's why he's wrong.

Image

Level39@level39

2) @ben_mckenzie made a novice mistake.

Visa is a "credit" payments network that just informs banks where to send money, later, through "final settlement" networks such as Fedwire, CHIPS, SWIFT.

#Bitcoin's blockchain competes with these low-volume final settlement networks.

Image

Level39@level39

3) Accounting for batching, #Bitcoin and Fedwire do about the same number transactions per year.

With layered solutions #Bitcoin can indeed scale to millions of transactions per second—meaning @ben_mckenzie's written testimony is factually incorrect.

Quote Tweet

nic (legacy blue check) carter@nic__carter·Feb 22, 2021

"Fedwire did 18m transfers in Dec 2020. Bitcoin did 26m transfers (counting multiple outputs) across 9.6m transactions in Dec"

Level39@level39

4) "While it would require time and investment, Visa’s payment network could sit on top of the bitcoin network to fulfill payments much the same way it sits on top of the existing banking system." — @parkeralewis

unchained.com Gradually, Then Suddenly (#5): Bitcoin is Not Too Slow Bitcoin fulfills the functions of currency issuer and final settlement but it is not a payments rail. Comparison to Visa and Mastercard are flawed; bitcoin's real competition is the dollar, euro, yen...

Level39@level39

5) Unlike the final settlement systems run by central banks, #Bitcoin finalizes payments 24 hours a day, 7 days a week, 365 days a year and satisfies every customer.

Central banks only settle payments during business hours and are closed on holidays.

Image

Level39@level39

6) Bitcoin not only never closes and never stops settling, it has a higher reliability and better uptime than the Federal Reserve, which is prone to outages and service issues.

Image
Image

Level39@level39

7) It is unfortunate that @ben_mckenzie (and his colleague @SilvermanJacob) failed to engage with the Bitcoin community, in good faith, and learn the basic structure and design intent of Bitcoin.

Layered architecture is an essential part of good software design.

Image

Level39@level39

8) Not only that, the entire Internet is built on a multi-layer architecture that took many decades to build and evolve.

That evolution continues to this day.

In the 1990s, some economists thought the Internet would have no useful purpose beyond the fax machine.

Image

Level39@level39

9) Even wireless cellular networks use a complex set of layered architecture.

To an untrained eye, these systems seem inefficient and clunky.

Yet, they allow us to communicate instantly and efficiently.

Image

Level39@level39

10) As Nik Bhatia @timevalueofbtc explains in his book, "Layered Money," monetary layers are not unique to Bitcoin, nor are they a new thing.

The House of Medici banking family operated on a layered system in the 15th century.

Image

Level39@level39

11) In the 16th century, Antwerp bankers created a new form of secondary money called promissory notes.

Unlike previous versions of second layer money that had a person's name on it, these notes did not and were freely traded, similar to currency notes or what we call cash today.

Image

Level39@level39

12) In 1609, the Bank of Amsterdam emerged as a kind of central bank.

It outlawed private cashiers and their notes and required all gold/silver coins to be deposited with the bank.

Depositors could instantly transfer Dutch guilders between accounts with no fee.

Image

Level39@level39

13) The Bank of England's first charter was granted in 1694.

Bills of exchange were promises to pay pounds.

Non-government banks and businesses issued promises to pay second layer money in the form of bills of exchange or deposits, and thus these liabilities existed on L3s.

Image

Level39@level39

14) In 1913 the US Federal Reserve was established.

Gold and US Treasuries were L1 money, wholesale reserves and retail bank notes were L2 money, and private bank deposits were L3 money.

Image

Level39@level39

15) In 1931, the pound sterling left the gold standard, ending its status as world reserve currency.

At Bretton Woods in 1944, world leaders agreed that all currencies beside the dollar were L3 money in the dollar pyramid.

Image

Level39@level39

16) Foreign nations were depleting the US gold stock, making it impossible to maintain a fixed price.

Foreign demand for dollars caused trade imbalances and in 1971 the US ended gold convertibility for the dollar—creating the current set of monetary layers.

Image

Level39@level39

17) The goal of #Bitcoin's "slow" blockchain is not to compete with the fast L3 payment networks of the world.

Rather it is to provide a sound, immutable, accessible and open digital alternative to the slow archaic global settlement of Treasuries, bonds, base money and gold.

Image

Level39@level39

18) These excellent diagrams come from Nik Bhatia's @timevalueofbtc book, "Layered Money." If you enjoyed them, order his book today.

https://layeredmoney.com.

Level39@level39

19) By comparing Visa's throughput to that of Bitcoin's, @ben_mckenzie made a novice error in his testimony and misled @SenateBanking into thinking that #Bitcoin cannot scale—something that could have been avoided if actual experts had been called upon.

Quote Tweet

Daniel Brain@bluepnume·May 16, 2021

"Even at PayPal, we understand the difference between a settlement layer and a transactional layer. :)"

Level39@level39

20) If @SenateBanking has any desire to keep the United States from falling behind to other nations, they would do well to seek out *actual experts* in #Bitcoin mining, energy markets and payments application.

Political theater will only cause the US to fall behind.

Level39@level39

21) In fairness, @ben_mckenzie is right about 99.99% of the "crypto" market.

Indeed it is nearly all scams.

While calling out those scams is commendable, to blindly call Satoshi Nakamoto's invention a scam shows a lack of critical thinking and expertise.

Level39@level39

22) @ben_mckenzie and @SilvermanJacob ought to make a sincere effort to understand #Bitcoin's architecture, and how it scales.

If they are willing, the community is willing and open to engage in thoughtful and meaningful discussion.

If not, it suggests they have an agenda.

Level39@level39

23) Unfortunately, having an undergraduate degree in economics does not automatically qualify one to understand #Bitcoin.

If only it were that easy.

It requires an open multidisciplinary mind and hours upon hours of research just to begin scratching the surface.

Link to OG article

https://nitter.net/level39/status/1604372871597264896

Related links

Ben McKenzie testifies against crypto in Senate hearing
An actor from “The O.C.” is speaking out against cryptocurrency — testifying at a Senate Banking Committee hearing focused on the collapse of FTX. Ben McKenzie told lawmakers on Wednesday that the …

💡
We publish daily doses of decentralization to over 4000 regular visitors, and boost out on Mastodon, Twitter, Telegram, Tribel and Element (Matrix) to over 4500 daily followers and growing! Please like & share our output. We rely on you for content, so please write for us. We welcome sponsorship and donations to help us continue our work - all major cryptos accepted or maybe buy us a coffee. Contact us at blog@decentralize.today - many thanks for all donations received, much appreciated.
Share this post