To be considered a free society, one must have the ability to choose the most free form of money.
The current system of government in the U.S. has a bad reputation among many Bitcoiners and arguably for good reason. This system is loosely called a “democracy” but appears to be more a tyranny of the majority. A democratically elected government that has the improperly checked power to coerce the individual into submitting to the ideas of its electorate really is a tyranny of the majority, there’s no real way around that. This is especially problematic if the tyranny has access to a large share of community funding through both regular and covert taxation. If a certain tipping point of funding is reached, that funding can be used by the tyranny to establish a feedback loop of even more power and more funding. This allows the tyranny to expand its power indefinitely, which could end up with a behemoth state that deeply controls the lives of the citizens who will have effectively become its serfs. Regardless of whether democracy can be considered a just basic structure in its own right, even Bitcoiners most averse to it have to come to terms with the fact that representative democracies are kind of hot right now. In fact, even those bitcoiners most likely lived relatively peacefully in one, once upon a time before the COVID-19 pandemic. At least for the foreseeable future, Bitcoiners all around the world will still have to deal with these sort-of-democracies, but if my argument is successful, those democracies will have to leave them alone in regard to their use of the phenomenal new monetary system we call Bitcoin.
In this article, I will argue that interacting with Bitcoin should be a protected civil right in every democracy because, if not protected, such a societal structure could not credibly be called democracy. I will argue that Bitcoin has fundamentally changed how we should look at societal coordination around a money’s constitutional content in such a way that it demands a reconceptualization of the meaning of democracy. Put differently: If my reasoning is correct, Bitcoin redefines democracy. This new definition is found in the newly required protected civil right of the freedom to choose your monetary system.
The progression of arguments in this article starts from establishing that coordination around a money is, in fact, a social contract or constitutional matter. Once this is established, I interpret the meaning of democracy in line with what it would be if it were a net positive to humanity. The combination of the two arguments leads to the conclusion that the freedom to choose one’s monetary system should be a protected civil right in every democracy. Lastly, I will briefly discuss what a civil right of free participation in a monetary system like Bitcoin would look like.
MONEY AS A CONSTITUTIONAL MATTER
There are many, many diverging theories and conceptualizations of what money is, some antithetical to others and some not mutually exclusive to others. The one that currently strikes me most is that money is a tool to measure everyone’s proportional share of the aggregate of goods and services available for trade. Money, in this sense, essentially is a man-made, mathematical tool of which the distribution provides humans with a scoreboard for value. As Nick Szabo brilliantly explained in “Shelling Out,” this scoreboard likely provided early man with increased capabilities in delayed reciprocity, which essentially facilitated division of labor. Division of labor, of course, allowed humans to become highly specialized, which caused a wild increase in the fruits of human cognition in every discipline imaginable.
In order to allow for division of labor, and in order to result in an increase of cognitive fruits, money has to provide commensurability of value between humans. In order for it to provide that it has to be accepted and used by all individuals that wish to economically specialize in some way. If a member or a small group of members does not accept the money, those members can only open trade with the rest of the community through barter, which makes trade much more cumbersome and thus results in them, to a large extent, being excluded from the benefits of the division of labor. Money definitely has, in this sense, a network effect. Under certain conditions, mainly that the community one finds themselves in uses money, it is more beneficial to an individual to partake in that community’s monetary system, even if he or she otherwise wouldn’t want to. Let’s call this the positive side of money’s network effect.
Opposingly, there is an incentive for a community to get everyone to use their currency, because it widens their access to tradable goods and services, and it allows them to get something for nothing through issuance. Let’s call this the negative side of money’s network effect. Both these phenomena are externalities of money being a tool for social cooperation or in more modern terms: a social network for the expression of value. The latter externality of money’s network effect is, at least partially, the reasoning behind legal tender laws. Legal tender laws enforce all members of a jurisdiction to accept a certain currency for goods and services. Legal tender laws, however, are unabashedly a product of tyranny of majority rule.
In an open system that doesn’t enforce legal tender laws, nobody is coerced to use a particular money and all individuals have to wilfully agree to ascribe value to a currency for it to actually become money. If people don’t ascribe value to the currency, it will simply never get to be a currency because nobody will exchange it for goods and services with actual intrinsic value. Coordination on what is money in an open system is very similar, if not identical, to any other ideal social contract, which, according to classical social contract reasoning, has to be a product of willful agreement by free individuals. In the real world, however, social contracts often are coercive in nature. Democratic constitutions can be used by a majority to enforce suppression and the same can happen with the enforcement of a monetary system. This construct is emphasized by modern fiat currencies, which find their roots in democratic constitutions.
The euro, for example, results from a treaty that is a supra-constitutional act of the representatives of the European Member States. Those representatives are, in turn, legitimized through their national constitutions to enact that treaty. The democratic legitimacy here is, to say the least, very indirect, but the euro is nonetheless a result from a social contract that is presumed to be traceable to free individuals that agreed on a system. The euro, however, is one of those imperfect social contracts that is enforced through legal tender laws and that is, thus, coercive. We don’t know for sure if people would want to use the euro if its use wouldn’t be enforced. The euro is a tyranny of the majority, at least as far as we can tell right now. Would the people of Europe willfully ascribe value to the euro if the monetary environment was not protected by coercion, but if it was, in fact, open?
One of the most important considerations for willful subscription to a currency are the rules for creation of that currency. The reason for this is that you don’t want any actor to arbitrarily increase his or her share of the aggregate of goods and services available for trade, because this would mean that the actor could consume community value without providing community merit. Humans are biologically incentivized to make use of the ability to get something for nothing, so the ability to create money would inevitably be used to arbitrarily benefit the actor in control of money creation. Ironically, the rules on money creation are the only thing that keeps fiat currencies from collapsing into a valueless mess. I say funnily enough, because these rules on money creation are highly gameable and get abused all the time. It shouldn’t come as a surprise then, that fiat currencies are falling apart. The rules on money creation in fiat systems are opaque, especially to the untrained eye, and it seems as if that is their intended purpose. Money creation in fiat currency systems is claimed to be beneficial because it ought to provide the economy with “price stability.” Price stability effectively means that the government and large financial actors close to the money spigot are legally allowed to siphon value from savings with the end goal of keeping the prices of certain consumer goods rising at about 2% annually. Apparently even this goal is gameable as long as you call an excess “transitory.” This monetary constitution is not one that most people would subscribe to if they were aware of its consequences, I imagine. Bitcoiners are aware that the fiat constitution does not have their interests in mind, but most people will feel the consequences of fiat’s monetary constitution before they understand what spurred them. Regardless, the fiat constitution is not a social contract I would like to participate in, I would rather subscribe to a different monetary constitution.
CODE AS THE CONSTITUTION
If you’re talking about monetary constitutions and ground rules for monetary systems in the year 2021, you can’t credibly proceed without thoroughly discussing the phenomenon that is Bitcoin. Bitcoin is a monetary system with a unique constitution that has gained traction among many individuals worldwide and its adoption is not showing signs of slowing down. Bitcoin’s popularity stems from it offering formal justice, a “hard money” standard and impeccable stability in terms of monetary policy. When talking about modern monetary constitutions it is only right to briefly discuss a recent discussion on the distinction between the constitution of bitcoin and those of cryptocurrencies. In a recent article of Pete Rizzo’s and in Twitter spaces and podcasts around his article, Rizzo made an important case regarding the difference between the constitution of bitcoin and of cryptocurrencies. Paraphrased, he argued that bitcoin’s constitution is special because it offers a set of rights that are set in stone. Bitcoin’s constitutional ground rules have never been up for debate and will never be up for debate.
Contrastingly, the constitutions of cryptocurrencies depend on what the market wants them to be, which makes them majority rule and de facto tyrannies of majorities. In this sense, Rizzo argued, bitcoin offers the individual something unique that it never had before. Bitcoin offers all individuals a money with the strongest property right that has ever been available to man, it is a bearer asset; it is not censorable, and it is dilution proof. Bitcoin offers an inalienable right to money and thus an inalienable right to participation in society. With bitcoin, the individual has access to all goods and services open for trade, all around the world, 24/7. In this sense, bitcoin truly is an apolitical money that has the potential to unify all the peoples of the world by providing them with a uniform, unstoppable avenue for the expression of value. Most importantly though, and this can’t be stated enough, it offers these things always, to everyone, precisely because the constitutional code is set in stone.
As you might understand, I would like to choose Bitcoin as my monetary system. Bitcoin’s constitutional code is exactly what I wish to subscribe to, and I think most people would if they understood the considerations underlying its constitutional code. The problem is, however, that there is a pesky government that stands to lose quite some power if I’m allowed to use it freely. If I switch to a bitcoin standard, it cannot keep debasing my savings and it cannot influence my spending behavior either directly or indirectly through manipulating rates or spending rights. The pressing question for someone like me then is, can this government, for good ethical reasons, keep me from using bitcoin?
CAN A DEMOCRACY BAN BITCOIN?
It stands to reason to first discuss whether the negative side of money’s network effect, that of legal tender laws and enforcement of a currency’s use, justifies the prevention of the use of a different currency. The main argument would come down to the increased economic activity a legal tender law would bring, which ought to negate the negative consequences of the coercion of that law.
The answer is that, in the first place, legal tender laws are generally not intended to exclude the use of any money in particular, they simply just command the acceptance of the legal tender in most cases. This only changes in times of extreme inflation when individuals have an incentive so strong that it makes them avoid the use of the inflated currency altogether. This is when a government historically wants to make sure that people don’t start using other (foreign) currencies. It is important to note, to go on a slight tangent, that really anything can be a currency because anything can have a store-of-value (SoV) premium or a medium-of-exchange premium/cash-quality premium or both. In this sense, really anything can at least partially function as a money between humans. Cigarettes in prison are a great example. The natural consequence of the observation is that if shit hits the fan in an inflationary system like ours, the issuer of the currency might want to prevent the access individuals have to buy, well, anything.
Given the fact that central bank digital currencies (CBDCs) might be programmed in a way they can actually enforce such access limitations, it stands to reason to firmly reject CBDCs and any step in their direction, at least if one prefers liberty over servitude. But let’s get back to the question, does the economic rationale behind legal tender laws justify any limitations on the use of a different currency? I’m going to keep the answer simple: Legal tender laws will have no effect on economic activity whatsoever and will be fully outdated as we move into the age of fully digital money. The reason for this is that having money be purely digital means that transaction settlement and accounting can happen at the speed of light. This makes it possible for anyone to spend any currency anywhere, which can be received in any and every currency by the vendor. This is how Jack Mallers’ Strike operates. Legal tender becomes meaningless when spending and receiving can be done in any currency of choice. So, can the benefits of money’s negative network effect justify legal tender laws? No, legal tender laws probably don’t have to exist anymore in the future, not in order to increase economic activity anyway. Everybody can exchange with everybody because accounting can be automated and executed virtually at the speed of light.
What is left then, is the question of whether it is justified for the tyranny of the majority to completely exclude the use of a different currency than its own, solely because that exclusion allows the tyranny to both debase savings and influence spending behavior? The question really comes down to whether the tyranny of the majority has the right to coerce the individual with the sole purpose of preserving its own power. To elaborate, I will discuss what a democratic societal structure would entail if it were to have any meaning or value to humanity at all.
DEMOCRACY, IF IT WERE TO MEAN ANYTHING
This section is not intended as some oration on the value of democracy and neither is it an argument for it. What I try to do here is give an interpretation to the meaning of democracy as if it were remotely valuable to humanity. This interpretation is also not something novel or innovative, but it is something that has been lost a little on many Western countries. What I mean by that is that democracy, in many Western supposed democracies, seems to have been given a legal positivist meaning, which means that the word “democracy” derives its content from what a democratic procedure makes it out to be. But this means that what a democracy is depends on what the tyranny of the majority makes it out to be. This is problematic, because as far as I see it, democracy is not some post-truth thing that can be made to mean whatever. It is a process for coordination within a human community that, if it is worth anything, ought to be rooted in the laws of human nature and game theory.
If I would have to give an answer to what a democracy is, I would say it is the ruleset for the creation and amendment of laws which are intended to aid humans in coordinating their actions with each other in such a way that it were to better their chances of survival. Because truth is by far the most important component to the survival of humans, to accomplish their purpose, laws have to be rooted in truth. But truth can be fickle and what appears true at some point, might prove to be false later. For this reason alone, laws have to be changeable and the ruleset for the creation and amendment of laws, therefore, has to allow for both self-correction and an undisturbed coordination on what the truth is. Rules contradictory to the principles of self-correction and truth finding, which are conditional for a democracy to mean anything, could, therefore, never be justified. If you follow this reasoning you would agree that many Western countries like Australia, Canada, some European nations and parts of the U.S. should have their democracy cards revoked after the occurrences of 2020–2021. Nevertheless, many people still consider those countries democracies. This is precisely the crux of democracy’s semantic problem and it is quite telling of the times we live in.
The principles of open truth finding and self-correction are foundational to democracy. Without those, democracy has no meaning. This is because it will always be in the interest of the one in democratic control to increase the power that stems from the democratic procedure. To increase that power, such an individual or such a group of individuals could try to block coordination on truth in order to prevent the community from self-correcting. Informational warfare is one of the least costly ways of gaining and preserving influence and for that reason alone a ruling tyranny often attempts to seize control over media outlets. If democracy were to be worth anything, it must accommodate for this natural fact, for otherwise self-correction and truth finding could, and would, inevitably be diminished. A democratic societal structure thus needs to provide checks against political seizure over, for example, informational flows, for otherwise it would not be self-preserving. The principle of self-preservation, which is just as fundamental as that of self-correction and truth finding, maintains that the political powers that can be gained from the democratic process should not be usable to diminish other principles fundamental to the democratic structure itself. If a democracy does not protect against a political hijack that is contradictory to itself, it cannot guarantee to remain a just societal structure. Such a structural vulnerability would render democracy meaningless in the long term, as it could not be considered a credibly stable model for human coordination.
Self-preservation can only be attained if individuals are protected from the tyranny of the majority. This is precisely to prevent the majority from consolidating power by diminishing the possibilities of individuals to express themselves, to better themselves or even to protect themselves. The principle of self-preservation demands the establishment of civil rights, which ought to protect all rights and principles fundamental to democracy from the tyranny of majority rule. Civil rights are, therefore, conditional to democracy’s existence, for without them democracy would inevitably turn into not-democracy.
A great example of such a civil right, one that has not been properly protected during the COVID-19 pandemic, is the right to freedom of speech and expression. This is the right that protects against political capture of informational flows. If the representatives of a majority have the ability to diminish, for example, an expression on a truth conviction, they have the ability to prevent coordination on a truth that could have had the potential to move the electorate to purge their representatives. This would obviously be contrary to the principle of self-correction, because instead of realigning the community’s actions with truth, their actions remain aligned with a falsehood that had not been allowed to be corrected. A lack of self-correction like this can be used strategically, potentially creating a feedback loop of power. Slippery slopes in democratic power are very real because a democratic ruler has an incentive to use their powers in order to create them. Clearly, the principle of self-preservation commands that potential feedback loops for power are checked by the protection of civil rights. Without such civil rights, every democratically shaped model for societal coordination will inevitably lead to a societal structure that cannot be called a democracy.
If you agree with the reasoning in this article so far, you would agree that there are two reasons why the civil right to freely choose your money is preconditional to democracy. The first reason relates to the fact that money printers are a slippery slope hazard and the second reason relates to how preventing people from using any particular money is effectively preventing the expression of a vote. Regarding the first, on the ground of the principle of self-correction and self-preservation, it is preconditional to a democracy that a government does not have the ability to take community value without providing community merit as it does through money printing. If it were to have that ability, it could one-sidedly redirect community value in a way that reinforces its power.
A government that can print money can misalign incentives at will, which effectively means that a government can bribe individuals into complying with mandates in a way contrary to what individuals would otherwise tolerate. If a government were to do that it would skew incentives in a way that takes away society’s will to self-correct. Because of the potential power imbalances it creates, money printing is contradictory to democracy. For this reason alone, individuals should always have the ability to opt-out of a centrally issued monetary unit, for if not allowed to do so, a tyranny of majority rule has an avenue along which it can asymmetrically built out its power.
The second reason why people should be able to freely choose the monetary system they wish to partake in is that using or valuing a currency is an expression that is synonymous to a vote for that currency’s constitution. When there is no benefit in enforcing the use of a uniform currency, and there is not a single ground for preventing the use of a different currency other than to prevent people from expressing their discontent with the enforced currency by opting out, there is no credible reason at all to forbid the use of that currency. Because the degree to which every currency is used becomes an expression of every individual’s mandate, preventing the use of a currency different than that of the tyranny becomes nothing more than an attempt at preventing a vote, an attempt at preventing society from self-correcting. Luckily, Bitcoin doesn’t care and can’t be stopped, which is why Bitcoin will work regardless of whether a democracy protects its use. That doesn’t change the fact that a democracy can’t call itself a democracy unless it recognizes that money needs to be chosen freely. If democracies that failed to incorporate this civil right earlier would want to redeem themselves, they could consider protecting the right to freely choose your monetary system as a civil right, precisely because it is preconditional to them labeling themselves as a democracy.
To summarize, the answer to the question of whether the tyranny of majority rule should be allowed to prevent the use of bitcoin solely in order to protect itself is a resounding “no.” If a government is allowed to prevent people from using a particular money, it indirectly allows them to coerce individuals into using a money that gives that same government the ability to misalign society’s incentives in a way that immobilizes society’s ability to self-correct. Preventing the use of any currency in particular is contrary to the principles of self-correction and self-preservation and thus contradictory to democracy.
I highly doubt that governments with a taste for central planning will understand, let alone incorporate, these principles. When they will eventually ban bitcoin, they will steer clear of the idea that they are doing so to protect their slippery slope. Government agencies have great PR departments that carefully control the narrative from miles ahead. The reasoning they will give for banning bitcoin will not matter, as they will inevitably be rooted in nonsense like: Bitcoin caused inflation, Nic Carter keeps boiling oceans with his node or criminals use it so you shouldn’t. We are lucky that Bitcoin doesn’t care, because democracies as they exist right now have proven not to be adequately self-preserving. The right to freely choose your money is preconditional to the existence of democracy, but all the tyrannies of majority rule that currently reside in power will be reluctant to acknowledge it. It takes great courage to abandon your most powerful tool, something we cannot expect from the sludge that’s in control in most places, but as we proceed, we will hopefully see more and more righteous and selfless leaders standing up. Their job? Ratify in their constitution the freedom to choose one’s monetary system.
THE FREEDOM TO CHOOSE ONE’S MONETARY SYSTEM
As I start to go into what the freedom to choose one’s monetary system would look like, I would like to mention again that Bitcoin already protects the individual that wishes to use it. The right to freely choose Bitcoin has been built right into its constitutional code. Bitcoin doesn’t require a democracy or a civil right to be protected, it already offers all rights to everyone. That, however, does not mean that there is no merit in also protecting the freedom to choose one’s monetary system from a democratic perspective. This is not to protect Bitcoin or its users, but to protect a jurisdiction from being crushed under the weight of a world that is moving back to natural incentives. Choosing to protect this as a civil right will be paramount to be a competitive jurisdiction and it will benefit a country greatly, simply because it empowers the individuals that live in that country.
Thus, I would like to roughly display what the civil right of the freedom to choose one’s monetary system would entail. The two components that I will expound on here are in no way meant to be an absolute list and I encourage everybody to think of other components to this new civil right. I start from the presumption that all the components that ought to be protected are necessary manifestations of participation in a modern monetary system like Bitcoin. Reasoning from there that I came up with the following two (very) basic components:
– Interacting with money anonymously
– No taxation on pure money holdings
INTERACTING WITH MONEY ANONYMOUSLY
Interacting with a modern monetary system should encompass everything that makes a money work. Interacting with Bitcoin, for example, should encompass: using and holding private keys, running a node, mining and developing. Why you ought to be able to conduct all these interactions anonymously has the same reasoning as why you have the right to own guns anonymously in the U.S. If a tyranny of the majority turns hostile against a group of individuals, in a way that is contradictory to democracy, democracy can only preserve itself if the defending group of individuals has a proper chance at protecting themselves. A marginalized group of individuals only has a real chance at protecting themselves if the tyranny of the majority does not have a clear list of people that have the ability to defend themselves, for otherwise that tyranny could easily target those individuals. This does not only apply to physical defense with guns but also to monetary defense with bitcoin. A government that wishes to take back control over money would have an easy time locating all individuals using bitcoin if they would have a perfect list with personal data. Therefore, having insight and data on who partakes in bitcoin could never become a requirement for interaction with the Bitcoin network within a democracy. Great examples of mandates that would require such data and that thus would be contradictory to self-preservation are rules similar to Executive Order 6102 or rules that demand insight into the source of energy production for bitcoin mining. Such requirements open up an avenue for a tyranny to potentially hamper a democratic principle of self-preservation.
NO TAXATION ON BITCOIN HOLDINGS
There should be no taxation over pure money holdings. If a government were to tax bitcoin holdings it would effectively undermine bitcoin’s constitutional content of being a sound money that is worth saving. Taxation of bitcoin holdings has the same effect on savers as collecting the inflation tax in fiat money and would bring us back to a system where a tyranny has the ability to manipulate incentives in order to tip the scale in their favor. Whether you save or spend should always be up to you and should not be manipulated, that is part of having the right to choose a hard money that does not require permission to hold.
Bitcoin already grants the individual all the tools necessary to choose its monetary system freely. Free coordination around a monetary system has been introduced with the coming of Bitcoin and will not go away anymore. By writing and running the Bitcoin code, Satoshi Nakamoto unilaterally redefined the meaning of democracy going forward. Bitcoin itself isn’t democratic, but democratic from now on has to be Bitcoin, at least if the word “democracy” were to retain any meaning whatsoever. It will be interesting to see which democracies will redeem themselves and which democracies let themselves get seduced by the idea of complete control. Tyrannies of majorities will have to reconsider their hostility toward Bitcoiners if they want to remain free democracies. Not acknowledging this new requirement will scare away the smart and able, like it historically always has. The new home of the free and brave will be where they feel welcome and where they feel welcome is where they are credibly protected from a tyranny of majority rule. All tyrannies of majorities will need to display selfless compassion by electing selfless politicians. “Selfless politicians” sounds like a paradox, but that is only because it is a scarce phenomenon that you only find a handful of times in the history books. It is precisely that scarcity that makes us recall them in perpetuity.
This is a guest post by Idse Val. Opinions expressed are entirely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.