Always-on liquidity, provided by businesses for businesses.

Bitcredit Protocol is designed to provide always-on liquidity for the real economy: liquidity provided by businesses, for businesses, inside production and supply chains. Without it, trade and production stall, products spoil, value gets destroyed.

Time-tested bills of exchange, now in electronic format, are issued and paid by businesses. The credit volume is objectively limited by the market value of goods in the supply chain, and the reflux upon their sale extinguishes it. That is a self-limiting mechanism which adjusts currency supply in lockstep with demand.

The protocol is designed to fix the defects of historic bill practice (the loosely coupled banknote issuance of the Real Bills Doctrine, as criticised by the Austrian School) by retaining the linkage to real goods at all times.

Present versus future money

Historically, when free banks took in a bill with a future maturity date they issued new notes (paper currency) and kept the bill in their vault. Those notes were prima facie indistinguishable from notes for warehoused gold payable on demand, despite being fundamentally different: notes for warehoused gold can be redeemed immediately, while trade credit can only be redeemed after the goods are sold for currency.

After politicians legislated a monopoly on currency production, bills could only be exchanged for central bank notes, which institutionalised that breaking point. Later, commercial banks did the same by creating demand deposits. All of these practices conflate future credit money with present base money, a seemingly small difference that is the source of a host of problems, including contagious bank runs when currency holders lose trust in a bank.

Bitcredit mechanics solve this. Wildcats never issue notes: e‑cash is produced by cryptographically splitting e‑bills into divisible units that strictly retain their distinguishing attributes: the business issuer and the maturity date. Finality extinguishes the whole e‑bill and therefore all e‑cash derived from it. This removes the timing mismatch of both prior state-of-the-art methods, paper technology and bank deposits, and with it the root cause of bank runs.

Bitcoin and Bitcoin credits should be kept in the end user’s own non-custodial wallet, secured by twelve secret words, until they are used for consumption, saving, or investment.

Decentralisation versus centralisation

When banking law grants a monopoly to central banks and adds overspecified legal tender restrictions, it does not only open an inroad for fiat currencies; it introduces a constant tendency towards centralisation. That trend is transmitted to commercial banks and demand deposit production, because the inherent fragility of unbacked fiat results in outsized regulation: unsuitable for a decentralised network of small and medium-sized banks, affordable only for big banks and their large corporate customers.

The result is a financing gap for small and medium enterprises (any economy’s source of job creation and innovation) and therefore stagnation and inefficiency. In a vicious cycle, the fragility of the financial system worsens as centralisation increases: a single bank default stops being one bank’s problem and becomes a systemic threat to an entire country, with possible global contagion.

Bitcredit is decentralised for maximum resilience: any two businesses can freely create e‑bills, and anyone can spin up a mint and compete on fees and service levels for the custom of businesses that need e‑bills split into liquid e‑cash.

Proof of work

A central bank, privileged by legal monopoly and legal tender laws, can issue an excessive amount of banknotes out of the thin air of government debt. As deficits have no natural limit, overissuance produces inflation, distorted interest rates, destructive boom-bust cycles, asset price bubbles, housing crises, social inequality, trade imbalances, volatile exchange rates, and more.

Private currency creation can be corrupted too, when issuance policy is unsound, as the Crisis of 1763 showed. Credit money created against ‘dry’ financial bills rather than real goods is unsustainable, and such a system ultimately experiences a monetary crisis. This is why the protocol rigorously restricts minting to commercial e‑bills issued against goods sold.

Anti-fragility

A bankless peer-to-peer monetary system on Bitcoin rails, relying on commercial bills of exchange, can be expected to enjoy excellent liquidity. Highly liquid e‑bills pre-empt the frequent crises of fiat systems caused by rigid banking regulation and fallacious ‘monetary policy’. A mint’s presence in the recourse chain of prior e‑bill holders enhances the e‑bill through its verifiable guarantee capital, and through the cascade of backup guarantees of every mint in the network.