Settlement with Bitcoin as complex cash

In the digitized world, we have not learned what cash is and are dependent on electronic account-based systems. However, the difference between cash and non-cash is staggering.

Bitcoin SV dedicated writer ZeMing M. Gao has published a remarkable article titled “More evidence that UTXO is superior to account-based systems.” In the article, Gao compares Bitcoin and Ethereum regarding their cash and account-based capabilities. Gao’s piece helps to understand what we are doing when we use our BSV satoshis:

“UTXO is like cash, in that each note or coin is independent of each other. As long as a dollar bill itself is authentic, the validity of a transfer is absolute and not dependent on separate accounting. In contrast, an account-based system is like bank credit money. The parties recognizes the face value of the credit, but a transaction is not settled until all accounts in the system are reconciled,” he explained.

If we take this short section of Gao’s article and really understand what it says, we learn why we use Bitcoin as cash—and not as so-called digital gold—makes sense. Also, Bitcoin is not just cash as it also serves other purposes.

Settlement with and without Bitcoin

There are settlements by account-based systems and settlements with cash. In an account-based system, the settlement is a calculation made within the account-based system. With cash, settlement takes place by exchanging the cash itself.

For example: If I send you a bank transfer, I send it from an account-based system (my bank) to an account-based system (your bank). The banks “settle” between themselves, but it’s still all in an account-based bubble, so to speak, and the banks don’t exchange cash with each other for that reason.

Now watch what happens when you want to withdraw the money I sent you via my bank transfer. You withdraw cash from your bank, as you have the right to withdraw – the right to withdraw is from the contract between you and your bank. The settlement of your claim against your bank is done when you have received the banknotes from your bank.

However, I never sent you money. If you want to send me cash now, you’ll have to deposit cash in your bank, and then we’ll both have to go back into the account-based bubble.

Comparison with Bitcoin: If I send you some BSV satoshis from my wallet to your wallet, no account based system is involved. The settlement is done with the transaction. Furthermore, there is no withdrawal of satoshis as you literally have satoshis in your wallet already. It’s cash.

Blockchain settlement without having to wait for any blocks

Another BSV-friendly source has already commented on the above topics: Unbounded Capital’s Jack Laskey published an article titled Only Cash Scales. In it Laskey states:

“(…) the problem is settlement – ​​making sure one account has the dollars they’re trying to send to the other account. Settlement is not a challenge when you send the dollar back and forth. It is clear that the other party has the dollar to send you because they just gave you the dollar. The order is clear because only one person holds the dollar at a time.

(…)

Furthermore, account-based systems cannot accommodate “zero confirmation” as a cash-based system can. In Bitcoin SV, transactions are settled immediately without having to wait for any blocks containing that transaction to be added to the blockchain. This is because the order is explicit and miners follow the first-come, first-served rule, meaning that the first transaction that uses certain coins is the one that will be used. “

So, Bitcoin is all about settlement. Hence the title of the Bitcoin white paper: peer-to-peer electronic cash system. We do not send withdrawal requests to the blockchain, but the actual cash is moved when satoshis are used.

Banking system and traceability issues

Interestingly, the recent source regulations can be seen as an attempt by the states to implement traceability to cash, but also to bank transfers. Wait, what? We thought wire transfers were already traceable, but the source of funds is also requested regarding wire transfers. It basically shows that the current bank transfer system does not have sufficient traceability.

Bitcoin, as in the BSV blockchain, helps to solve two problems simultaneously: the settlement is the transfer of the individual satoshis, just like when exchanging a physical banknote. Yet, at the same time, traceability is a given, as every single satoshi is publicly traceable on the blockchain.

Furthermore, when BSV scales, it automatically provides more privacy to the end user. This is something that the current bank transfer system cannot compete with.

Dr. Craig Wright on electronic cash and settlements

Let’s take all this a little further. Bitcoin inventor Dr. Craig Wright has been preaching about the money side of things in Bitcoin since Bitcoin’s inception. I could dig up countless quotes from Dr. Wright regarding Bitcoin as cash.

Among his more recent pieces, Dr. Wright says in Directly from One Party to Another…:

“The nature of a Bitcoin transaction is similar to the nature of a negotiable instrument such as a check (Aigler, 1924). It forms a type of money, but is more than money when it can be settled as quickly as on the Bitcoin network. As such, be it cash.

(…)

Cash is ready money. Grant (2019) notes that “a negotiable instrument is equivalent to cash.” It is something that is quickly exchanged and settled.”

It’s a very short quote, but there’s a lot in it: “Cash is ready money.” Is your BSV satoshis ready money? Yes, they are, as they are ready to use anytime you want.

And is Bitcoin “more than money”? Dr. Wright is referring to the fact that BSV satoshis are not fair a type of moneybut more than that – as they can be used as cash with their immediate settlement ability.

However, there is even more to “more than money” than that – as explained by John Pitts, Bitcoin is a computational commodity. In Pitt’s article Zen Yotta Mond Data we find this statement:

“The Bitcoin Network Provides a Commodity Marketplace for Computation.”

However, the current cash we use is just cash, paper cash, bank notes, nothing more. Ethereum tried to be about computation and let the cash aspect go. BTC left the computational properties of Bitcoin and the cash dimension at the same time (“digital gold” narrative).

The true Bitcoin, as in the BSV blockchain, can be money, can be cash, and is more than money and cash at the same time. Maybe it’s time to talk about that kind of cash like one complex cash. I would even go so far as to say that it is incorrect to describe Bitcoin as exclusively cash.

I see no competition for Bitcoin as complex cash: neither from today’s banking system nor from government-issued currencies, and certainly not from other digital assets. With the original Bitcoin (BSV), we can pay, settle, track and calculate – plus have privacy at scale.

New to Bitcoin? Check out CoinGeeks Bitcoin for beginners section, the ultimate resource guide for learning more about Bitcoin – originally envisioned by Satoshi Nakamoto – and blockchain.