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“Anarchy is order; government is civil war.” – Bellegarrigue
The advent of decentralized money gave rise to an intriguing cognitive bias among early adopters. Bitcoin’s success is convincing many that we can do away with trusted institutions altogether—that trust itself can be engineered away. This hubris is reflected in how we deploy our collective resources and capital.
In the absence of appropriate social structures, we have become risk averse and generally mistrusting of each other. As a result, Bitcoin commerce has become marginalized and many revolutionaries have retreated into techno-utopianism. This complacency has deprived many of the tools needed to navigate this digital economy. Between regulated platforms and half-baked scaling solutions, there is little room for alternatives.
The situation is bleak: the majority of Bitcoin’s commercial activity still revolves around fiat interfaces. Inertia has left users vulnerable to highly organized state actors. While our technical elite fantasizes about theoretical constructs, progress around practical solutions has stalled. Instead of stimulating market functions to replace current financial institutions, we have allowed them to further entrench their position, passively accepting their authority.
This pattern is all too familiar in revolutionary movements—once wealth has been seized or obtained, ideals often become lazy.
Fortunately, the convergence of two technologies—one old and one new—holds the potential to challenge the status quo. Chaumian ecash, decades in the making, and Nostr, a novel, decentralized, social network could provide the groundwork necessary for emergent behavior to trump central planning.
The Financial Anarchist seeks to harness this potential and challenge the incumbent system with decentralized alternatives. He embraces the risk entailed by this duty because he believes it is right and just. He believes we can embrace and wield trust rather than reject it outright
For the Financial Anarchist, decentralization is not an end in itself, but a means to empower individuals and cultivate genuine economic freedom.
A public forum
Like Bitcoin, Nostr does not attempt to prescribe what its users make of it; rather, it offers a set of rules for individuals to organize around and create a foundation for markets to emerge. Those rules are based on a fundamental set of principles: censorship resistance and decentralization.
It achieves this using distributed servers called relays. Relays host content published by users, and thanks to encryption, cannot discriminate based on the nature of the content. Each user event is signed by his cryptographic key and Nostr ensures it remains always available by distributing data across multiple relays. Of course, users are also encouraged to run their own relays. To interact with this network of servers, participants use a variety of software clients that can verify the authenticity of messages shared by others.
Those features and many more make Nostr a strong contender to become the identity layer for the online arena. Every individual is represented by a unique identifier tied to a public key. The motivation is to eliminate the concept of accounts usually associated with centralized platforms. The arrival of Nostr heralds a new era of market prosperity, enabling individuals to liberate themselves from the serfdom of the consumer internet. Identity is finally freed from its fiat chains.
Thanks to its versatility, the protocol lends itself to an ever-growing number of use cases. Chief among them is the creation of social networks for us to coordinate around local and global marketplaces. An interesting trend in this direction is the integration of Nostr with Bitcoin payment applications. Using the protocol to communicate between Bitcoin services, we can enable interoperability so that our social graphs can be ported to any supported application. Our network becomes an extension of our Nostr public key, allowing us to maintain our financial relationships across platforms.
The Financial Anarchist imagines Nostr as the foundation of a new Serene Republic, the ultimate theater for trade and industry in the digital world. It is here that we begin the process of individuation anew.
Reputation markets
Today’s reputation systems are entangled with fiat institutions, with public information about trade and commerce siloed into centralized databases. An open and distributed record of trust is a significant step towards a legal system more closely resembling natural laws. Based on cryptographic attestations of social connections, a functional Web-of-Trust can align users’ incentives and allow markets to thrive by significantly reducing the costs typically associated with enforcing fiat contracts and laws.
Though this may seem implausible, informal systems like Hawala already rely on trust and reputation to operate. Based on a global network of informal brokers, nearly half a trillion dollars move through these channels every year. Built on centuries of accumulated trust and relationships, Hawala examplifies the potential and resilience of self-regulating economies. (citation needed)
Nostr introduces a radical shift in our approach to reputation as it promises to replace centralized certificate authorities with local and distributed trust archives. Relational databases can now be unique to every individual, informed by their voluntary interactions with other market participants. Using simple discovery features, we can reduce information asymmetry and practically eliminate barriers to entry. Individuals new to Nostr only need a single trusted connection to reveal an entire social graph based on their peer’s connections. Imagine the “recommended” feature of the average digital platform but open and extended to every facet of the market based on your social network.
Nostr gives us the tools to survey the integrity of counterparties and accurately assess your position against them in the economy. It is now possible to establish trust structures outside the purview of traditional internet platforms.
Economist Hernando De Soto has attested to the quality of societal records as a defining characteristic of modern societies. Keeping accurate records of assets and transactions is crucial to economic prosperity. Nostr allows us to take an unprecedented leap forward in this regard. We can finally seize information and our data back from the fiat overlords.
The goal is not to eliminate institutions or middlemen but to democratize the provision of such services — preferring systems based on social accountability over centralized institutions and their monopoly on violence.
Electronic cash
While Bitcoin makes several tradeoffs to achieve global trust, the decentralization of finance should not be seen as an end in itself. Unfortunately, this misconception has gained popularity over the years, leading to inevitable conflicts of interest and moral hazards.
A compelling alternative is to recognize and embrace the inherently local nature of finance. Finance operates locally, while money functions globally. Attempting to decentralize finance as if it were money is an exercise in futility.
Chaumian ecash offers a different approach. For the uninitiated, ecash is a medium of payment made possible by the use of blinded servers. Using any form of collateral, the server can issue a corresponding number of tradeable notes. By design, Chaumian mints cannot identify individual payments, payers, or payees. Notes can be transmitted over any communication layer and do not rely on third parties for settlement. The Lightning network allows every Chaumian mint to settle with one another, allowing local finance to operate at a global scale.
Despite its remarkable features, ecash has often been dismissed by casual observers due to its custodial model. However, this perspective overlooks its true potential. By distributing risk across smaller, local instances, we can address the systemic issues typically associated with custodians. Payments are inherently social, making intermediated finance a natural fit for many transactions. The Financial Anarchist dreams of a future where every Bitcoin wallet has access to the modern equivalent of a neighborhood bank. By leveraging their Nostr social graph, users will be able to quickly identify trusted payment hubs within their network. In doing so, ecash protocols will redefine banking and payment services. We can reduce finance to its smallest common denominators, reversing decades of centralization caused by fiat cronyism.
Using Nostr as a coordination mechanism, we can empower communities to pool common resources and establish dedicated financial hubs. Individuals can interface with the Lightning network by sharing channels and liquidity, providing cost-effective payments for every participant. Any group of users can now collaborate to optimize their interactions with the Bitcoin network. As a result, the convenience and user experience associated with custodial wallets are no longer exclusive to large institutions.
Because of the protocol’s versatility, onboarding other users becomes trivial. Ecash notes can be issued for every payment request and used by the recipient to pay any Lightning invoice. Atomic payments allow it to piggyback off any wallet on the network without the application developer changing a single line of code. Users can accumulate notes from different issuers or swap them into their preferred mint. Alternatively, distinct notes can be used to fund a single multi-party payment, affording users incredible freedom and optionality. Members of certain communities may begin accepting a collection of different notes depending on their relative social proximity to the issuers. Mints could be distributed such that multiple operators could issue tokens, effectively distributing the risk of user exposure to a single operator.
This free flow of payment will snowball in different ways. First, a new class of dedicated users will emerge, advertising their services through various marketplaces. One area of particular interest is the provision of stable ecash notes. Thanks to its native programmability, it’s possible to issue dollar-denominated ecash backed by Bitcoin reserves. This could have significant implications for the Bitcoin economy. Using the asset as collateral presents many opportunities to extend its market demand beyond its current speculative use cases. This could result in a flywheel effect which provides the necessary liquidity for it to stabilize over time and become a more reliable medium of exchange. Until then, the unique properties of ecash make it a superior option for payment applications which could see it challenging the current treasury-backed stablecoin hegemony.
The operation of stablecoin mints also creates compelling incentives for liquidity providers. By issuing dollar-denominated notes, they can establish non-custodial long exposure to Bitcoin and take directional bets on the asset. The distributed and permissionless nature of ecash operations presents an interesting contrast to the centralization of current stablecoin issuers, offering market actors a way to hedge their risks against single points of failure.
The grassroots adoption of this technology will undoubtedly face challenges, akin to the early days of Bitcoin and Lightning. While hobbyists and amateurs play a crucial role in bootstrapping ecash, creating a robust and reliable financial system at scale will involve growing pains. Opportunists may exploit others’ trust, and the custodial aspect of mints makes them particularly susceptible to scams and fraud.
However, safeguards can be implemented to mitigate these risks. One idea being explored is programmatic redemption, which would require issuers to regularly prove their solvency. Users would periodically “rotate” the notes in their wallets, exchanging them for new ones. Some have referred to the idea as “scheduled bank runs”. The technical details could be abstracted away to ensure a seamless experience. Additionally, various “Proof-of-Liability” systems are being developed to mitigate the risks of fractional reserves.
As a general rule, it is wise to avoid holding more in ecash mints than one can afford to lose.
Conclusion
We have no elected government, nor are we likely to have one, so I address you with no greater authority than that with which liberty itself always speaks. I declare the global social space we are building to be naturally independent of the tyrannies you seek to impose on us. You have no moral right to rule us nor do you possess any methods of enforcement we have true reason to fear. – A Declaration of the Independence of Cyberspace
In an age where centralized authorities dictate the rules of financial engagement, the Financial Anarchist emerges with a radical proposition: to support an alternative system reliant on trust between individuals.
This is not a call for civil disobedience. It is also not an attempt to undermine the valiant work of developers focusing on trust-minimized technologies. It is the proclamation of the undeniable potential within our grasp as individuals to organize and use technology to elevate our communities.
The spirit of voluntary association at the heart of Bitcoin should drive us to focus our efforts on maximizing market optionality. Sadly, the paternalistic approach borne out of techno-utopianism has failed at this mission and left us stuck within the constraints of traditional financial institutions.
The Financial Anarchist envisions a world where Nostr and Chaumian ecash allow us to reclaim this sovereignty. By opening up the design space for experimentation and locally-driven initiatives, we are making a conscious effort to divorce from the centralized command structure we’ve inherited. The vision of autonomy and self-regulation alluded to by those tools reinforces the notion that individuals should be free to define their economic relationships on their own terms.
We must build new autonomous zones across cyberspace, away and out of reach from the “weary giants of flesh and steel” Perry Barlow warned us about. The current state of distrust in our ranks is not the natural order of things; it is the consequence of generations of imposed authority. It is no surprise that today nobody even trusts their neighbor. Should Bitcoin prevail, we expect this trend to reverse course and eventually foster levels of trust among individuals previously deemed unimaginable. Anything less would be a tragic outcome.
