Monetary Economics of Bitcoin

Bitcoin's Missing Credit Money Layer

"The Dual System Theory of Money: A sound monetary system is comprised of a stock of a scarce monetary commodity plus a production-backed elastic supply of credit money denominated in it."

– Hubertus Hofkirchner, 2015

Overview

Bitcoin is sound base money (M0), but it lacks the credit money layer needed to function as a global monetary system, a currency. Without a mechanism for issuing short-term, non-inflationary media of exchange denominated in bitcoin, its purchasing power will remains volatil and block adoption by businesses in the real economy.

Bitcredit fixes this by introducing a novel bitcoin credit money layer (M1). Businesses issue electronic bills of exchange to pay for real goods and settle on the Bitcoin mainchain at maturity. Bitcredit mints, so-called wildcat nodes, split protocol-compliant e-bills into minibills representing bitcoin credits: a bitcoin-denominated currency for instant, private, scalable and free payments.

Start here — chapter 01ExchangeOn the Utitility of MoneyRead →

Volatility

Bitcoin's volatility will not go away by itself. It needs a credit money layer to stabilise Bitcoin.

Valuation

As a store of value, bitcoin is stuck. As a medium of exchange, it can capture gold's monetary premium.

Real bills

Every 'real economy' e-bill traces back to a higher order goods passing through the supply chains.

Elasticity

The supply of credit money expands and contracts with businesses' demand, not by central bank 'policy'.

Reserves

Mints hold full reserves against e-cash, bitcoin payment is ensured by a two-pronged guarantee chain.

Enforcement

Any credit mint's assets and liabilities are rigorously verifiably and constantly supervised by other mints.

Redemption

Every e-bill is paid on mainchain at maturity, thereby building an immutable credit history of payer honesty.