Nov 4, 2022
When Bitcoin was first introduced, a little over 14 years ago, it caused quite a stir. More importantly, it caused a lot of people to look at the ideas behind money and finance from a new perspective.
Money is very simple, a token given in exchange for something of value. That token can be exchanged for something else in equal value at a later point in time.
Yet, if we look at the financial system today, there are numerous financial instruments. Concepts like stocks and bonds and many others. Concepts that could not exist without the idea of money.
The point is, when people start to build something bigger together, like organizations or corporations, those financial instruments become the glue that holds it together. Or maybe more accurately: the oil that makes it run smoothly.
Since the birth of Bitcoin and other crypto currencies, people have been thinking about how to empower crypto with above mentioned benefits to society. This has been a learning experience. From naive ‘colored-coins’ to ‘Group’ on Bitcoin Cash to the Ethereum design itself, a lot of attempts have been made.
Bitcoin Cash is money. It is mostly used as money and not much more. The 99.9% of the transactions all use a single simple contract-type. The technology supports what humans want to do with peer to peer payments.
When we look at other usages of money we can see that are missing quite a lot. A group might want to start a company and sell shares. They may want to pay dividends to those shareholders. For even such a simple common concept one ends up needing to make contracts in the real world and depending on a centralized solution to enable this.
The reason for this lack is because contracts on blockchain cannot react to real-world changes. This is a simple fact that severely limits the usefulness of smart-contracts. To reach the goal of being able to do more on the blockchain we need to somehow insert the important data into the blocks.
After a Bitcoin Cash upgrade several years ago that enabled Oracles, this improved significantly. But the grand prize lies in moving many more USAGES of money (in business) to the blockchain itself. Like that example of paying out dividends, for instance.
There is a need to recognize that the value lies in the contracts, not alone in the payments. It is already possible to see from the blockchain that the company indeed pays out some money to some people. But to whom and why? As far as making these payments on-chain is easy and useful, it is ultimately not all that valuable if the contract still has to be on paper and enforced by lawyers. The moment we make it possible to move the contract on-chain (which would have a consequence of doing the payments also on-chain) is when we start to provide actual value.
Two fork approach
How can the above issue be solved?
The first idea rests on the fact that the traditional banking system revolves around actual named entities. Companies and people. Your bank-account lists the counter-party by name, in most cases.
In Bitcoin we don’t have that. Which is a direct result of the coin being pseudo-anonimous. You can see the conflict here.
So the first idea is to provide a means, purely opt-in, that allows one to create an identity on-chain. Getting money back from your energy company? You can resolve the sender’s identity and your wallet will show this with the new ‘metadata registries’ proposal which is in beta-stage right now.
The second idea is a part of the planned 2023-May upgrade: cash-tokens. This is the result of basically a decade of ideas being tried and refined.
Cash-tokens is a set of scripting-primitives and tokens. It allows one to create new tokens backing an registryIdentity. And they can interact with other tokens. Including Bitcoin Cash. They can store a contract which will be enforced.
Those two together introduce a new concept into Bitcoin Cash. They introduce players into the system.
Imagine the early Internet where the only option was to make a connection to another person (peer to peer). Then servers were introduced which paved the way for websites. It is hard to imagine the web being as big as it is if that had never happened.
Bitcoin was released as a peer to peer cash 14 years ago, making money transmission and coinage decentralized for the first time in human history. But payments are still shackled to the real world and trust is still required for most non-peer-to-peer cases.
The dual proposals of cash-tokens and metadata registries are a really exciting solution that can break those ties. In a cheap and scalable way many more cooperative human endeavors can be represented on-chain including the financial interactions between them.
Cash tokens is possibly the longest researched project with several teams starting and abandoning the project. In Bitcoin Cash the first paper was published in 2017. It was called op-group. I’ve been involved with all of the revisions in one way or another and for me the latest CHIP is “good enough”. Which means that in my opinion it can be used to elevate the chain to allow many more usecases and we can depend on it being maintainable and usable for many years to come.