Author：ZeMing M. Gao, business strategist; IP attorney (USA); Company-as-a-Product (CaaP) expert; IP builder/strategist/economist; blockchain strategist/economist; tokenization and smart contracts expert; SEC/FINRA Investment Banking representative, Chief Advisor at Caapable.com advising multiple companies; email: gao@caapable.com
All kinds of innovative businesses and even new economies are going to be built on the Bitcoin SV blockchain. It is time for everyone to start to think about these businesses or economies, and participate, instead of speculating on the bitcoin prices (so toxic and nonproductive).
For anyone who is a bitcoin enthusiast or even expert, I also challenge you to open up your mind and go beyond ideological but superficial understandings of the new world. Bitcoin blockchain is inherently multidisciplinary and multidimensional, and anyone who brings a narrow view from one field misses the whole picture.
Here is a perspective.
The Bitcoin blockchain has 21 million bitcoins, and each bitcoin has 100 million tokens called satoshis.
Bitcoin is not merely an economy, it is a vast piece of “land” that has been pre-plotted into 2.1 quadrillion “lots”. On each lot (a satoshi token), a piece of economy (a value) can be created. This is done through extensible tokenization protocols, which enable a “retokenization” process to create a different token on top of one or more bitcoin tokens (satoshis). A variety of new tokens, legally compliant tokens, SPV-compatible tokens, multiple user tokens, fungible tokens, non-fungible tokens, issuer permissioned tokens, etc., can be created. Combined with smart contracts, these tokens will enable innovative business models or even support new economies. Imagination only is the limit.
Note that we are not talking about the value of the satoshi itself, but rather a new value created on top of the satoshi.
Once this value creation is done, the underlying “lot” (satoshi token) acts as a carrier of the value, and as a result, all the transporting features such as security, double-spend prevention, immutability, transparency, non-repudiability, pseudonymity, etc. enjoyed by bitcoin (and every satoshi token) are also enjoyed by the associated value token.
And importantly, the value token itself can have an independent economic value determined by its own economic factors and the market, and is essentially unrelated to the value of underlying satoshi token. It is akin to saying that one can build a building on the lot, and the building can has its own value which does not have to be derived from the underlying land, except that, in the case of bitcoin, this dissociation between the value of the “land” and that of the “building” is much more complete than the real land and building.
This has enormous implications. If you think bitcoins are expensive, wait until you see the much more valuable economies that are built on the bitcoin land. And remember when you buy one bitcoin, you are buying 100 million “lots” in the bitcoin land.
The following uses CBDC as an example to illustrate what can be built on this new land.
Create Central Bank Digital Currencies (CBDC) on the bitcoin blockchain
Every central bank can do this. Each central bank takes a different tract of the bitcoin land and nations will not lose monetary sovereignty to each other.
Take the US as an example. The US can implement its digital dollar right now with less than $200 million of one-time investment as the “minting” cost. This would create a $100 trillion digital currency reserve, more than enough for the largest economy in the world.
The following is how:
(1) FED buys one million Bitcoin SV (BSV) coins (see below why BSV not BTC), which together consist of 100 trillion satoshis, each a unique crypto token.
(2) Tokenizes each satoshi token to represent one US dollar.
(3) Gradually distributes the tokenized digital dollars according to fed plan.
It is that simple. Once BSV coins are purchased by the Fed, they come under complete control of the Fed, and cannot be used for any other purposes (this is not merely a prohibition by authority, but also an inherent technical impossibility on Bitcoin blockchain). The Fed does not have to tokenize 100 trillion satoshis all at once, but can do it gradually on a need basis. Alternatively, the Fed may tokenize all 100 trillion satoshis at once, but only release them as needed.
At the current price of BSV coins ($165 per coin), the “material” cost of minting the digital US dollars is only 0.00000165 per dollar, or $1.65 per million dollars. Sure, purchasing such a large block of BSV coins will likely raise the BSV price significantly, perhaps even a few times. But even at a 100 times price rise, the minting cost per dollar is still negligible. Even at 10,000 times, the minting price is still competitive compared to the conventional mint technology.
Besides, the circulation cost of the digital dollar thus created is going to be a continual money-saver due to the bitcoin blockchain efficiency.
The superiority of the digital dollar based on bitcoin
I have previously written about the benefits of CBDC in general (see for example, Why bitcoin must reckon with Central-Bank Digital Currencies (CBDC), and Why China’s CBDC will succeed, and why it will not)
The digital dollar based on bitcoin has all the benefits of CBDC in general, and more.
For example, one might argue that in the current monetary system, only a small portion of the money is actually minted or printed as cash, and vast majority is created electronically at no material cost. That’s true, and it brings up a different topic which shows the fundamental benefit of the digital dollar created on top of bitcoin satoshis. Satoshi tokens may be cheap, but they cannot be created freely at will by the central bank. It is precisely from this encumbrance that the superior nature of the digital money based on bitcoin arises.
In other words, although minting the digital dollar is more expensive than creating electronic money freely, the important thing is that with the digital dollar based on satoshi, the central bank does have to mint every dollar and cannot create it out of thin air as it can now, and the dollar that’s minted this way is real and has characteristics of cash, including the instant settlement feature, lacking thereof is the biggest reason why today’s banking system is slow and expensive.
The proposal does not make each BSV satoshi the equivalent of a US dollar
There may be an immediate concern that would be the case, but no, this does not make each BSV satoshi worth one dollar (which would be equivalent to each BSV coin being priced at $100 million, an absurd price).
This is because the satoshi token that is embedded in each digital dollar is re-tokenized, and will no longer be traded as the original satoshi, but as a new token. The ordinary satoshis of course will continue to be the regular satoshis and will not be mistakenly traded as the US digital dollar, as they are entirely different tokens.
Independent valuation as a native stable coin
The digital dollar thus created will have an valuation as a native stable coin. It will be always just one dollar, and this value is unrelated and unaffected by any price volatilities of the underlying bitcoin (and satoshi tokens). This is because the value of the underlying satoshi is insignificant compared to the fed denominated dollar value.
This will render all other stable coins useless.
In addition, any future increase of BSV coin price will not affect the minting/exchange/transfer cost of the US digital dollar, as the embedded satoshi in each US dollar is simply serving as a technology vehicle, and the satoshi token and its value is not part of the digital dollar value application as money or currency.
Anti-counterfeiting
Importantly, there is no question of mingling nor counterfeiting, because each bitcoin satoshi is a unique token that can be individually marked and tracked. A counterfeited digital dollar using regular satoshi tokens can be easily recognized, denied of any possibility to enter into circulation.
BSV is ready
At the present time, not only has the Bitcoin blockchain itself become mature, but extensible tokenization protocols and smart contract scripting languages on BSV are also being developed, and quickly maturing. These methods enable a “retokenization” process which will be used to create a different token on top of one or more bitcoin tokens (satoshis). A variety of new tokens, legally compliant tokens, SPV-compatible tokens, multiple user tokens, fungible tokens, non-fungible tokens, issuer permissioned tokens, etc., can be created.
Due to the unbounded scalability of BSV, the entire power of extensible tokenization protocols can be released without having to resort to complex layer 2 solutions that are unreliable and do not offer real-time settlement.
The digital dollar token is just one example.
The new digital dollar token can use a layer 1 token protocol (or sometimes called layer 0 token protocol, see The Resolution of the Bitcoin Tokenization Experiment by Jerry Chan of TAAL) to have its transactions completely placed on the bitcoin chain, benefiting from all the advantages of Bitcoin blockchain. All the token logic, trustless model, mining network validation, are performed directly on the chain by the miner nodes without requiring an external validation layer. If the Bitcoin blockchain is viewed as a computer, this implementation is like implementing the US dollar at the CPU level, deeper than the operating system level, and still deeper than the application level.
With the new digital dollar, wallets come at the application level. Once the digital dollar is thus implemented, it is almost a trivial thing to develop a variety of wallets for variety of applications.
Works with BSV only, not BTC
This CBDC construct may only work with BSV, but not BTC.
The reason is very simple: BTC is incapable to scale. In fact, BTC does not even want to scale, as it wants to be the “digital gold” as a store of value, instead of a technology for exchange of value. BTC is stuck at 6-7 transactions per second by keeping the block size at one megabyte, which is a direct result of BTC core’s antigovernmental leaning ideology.
With the digital dollar, you need the ability to scale to millions of transactions per second, and Bitcoin SV (BSV) is the only blockchain that is potentially able to do this.
And at the same time, BSV enjoys proven Bitcoin blockchain reliability based on proof-of-work.
BSV coins are the new “land”
If one sees how this works, it is abundantly clear that the BSV bitcoin blockchain is the “land” in the new world of the digital value network.
In contrast, BTC wants to be the digital gold. I doubt it will be (see “Definition of Value” & “Exchange of Value”. But even if it does become the digital gold, it can never serve as the “land” of the new digital world. It is readily appreciable that the land is worth much more than gold, not to even mention the entire “real estate” economy that is going to be built on the new “land”.
