This is a one-page archvie of all links posts, in which I link to an article and offer my brief commentary. The essay posts archive is here.

This new report from PositiveMoney, a progressive UK nonprofit, has a great treatment of the question:

Fundamentally, there are two main types of payment systems or transfer mechanisms: token-based and accountbased systems (Kahn et al, 2018, pp.8-11). Both are record keeping arrangements, but they are distinguished by their identification requirements.

The primary example of a token-based payments system is cash, where what really matters is the identification of the payment instrument: making sure that the note or coin is not counterfeit. It also constitutes a decentralised payment system, as the clearing process occurs bilaterally when the money instrument is transferred between the transacting parties. In this case, the cash itself is the record, acting “as a device that summarizes past production, trade and consumption decisions” (Kocherlakota, 1998, in ibid. p. 8).

The most important account-based payment systems in most modern economies are commercial bank deposits and central bank reserves (CBRs). What is crucial for account-based systems is the identification of the accounts of the transacting parties so the transfer of funds can happen and the transaction to be cleared. This record keeping is done by a single trusted party (such as the central bank when banks transact using central bank reserves) or by third parties (for example, when transactions happen between two people who have accounts at different banks), usually for a fee.

An account-based CBDC requires a centralised payment system to clear transactions (controlled by a trusted party or trusted third parties), whereas a token based system could be decentralised, with clearing happening between those conducting any given exchange.

Crypto folks will recognize these approaches under the names permissioned and permissionless. Two quick points:

  1. Any serious proposal for a digital dollar should be either token-based, or include a token-based component in addition to an account-based option. Digital cash must have at least feature parity with physical cash.
  2. It’s fascinating that the proponents of CBDC who seem to have all the energy these days are not the usual suspects, but modern monetary theory types who want to are no fans of commercial banking.

The inimitable and estimable Peter McCormack had me and Peter on his podcast to discuss the basics of how law and regulation applies to Bitcoin. It’s part of his Bitcoin Beginner’s Guide, which is aimed at folks just getting up to speed on the tech and ecosystem. It was great fun doing it and I hope you will enjoy listening to it.

Businesses such as importers and exporters of goods ranging from baby products to furniture in Asia and Europe are using so-called stablecoins including Tether and USD Coin, according to payment processors and over-the-counter trading desks.

Transactions with suppliers and vendors already reach up to $10 million a day at Singapore-based QCP Capital, which caters to such clients. At payment-services provider B2BinPay, transactions already account for millions of dollars a month, and are increasing daily, said the Moscow-based company.

Makes total sense, especially for gray market businesses with tenuous connections to the dollar financial system. Given that most trade is denominated in dollars, cryptocurrencies like Bitcoin may not have previously caught on because of the currency risk, but USD stablecoins fit. Tether makes up most of the market, but

In other nations such as Indonesia, businesses often prefer more regulated stablecoins, such as USD Coin, which are issued by U.S.-regulated financial institutions and audited every month, Sit said.

I imagine that Centre and USDC issuers welcome this growing use. I wonder, though, if this catches on, what their reaction might be if there’s an explosion in growth driven by active avoidance of the US-dominated financial system, and not just small firms seeking efficiencies.

Somewhat related, adult entertainment website Pornhub has added Tether to the payment options available to performers after PayPal cut off the site. Again, makes sense. These performers want to avoid the payments networks that will derisk them, but they’re not interested in the currency risk of accepting Bitcoin. I’m sure they’d also welcome the additional safety that would come from regulatory oversight of stablecoin issuers as long as their use remains permissionless.

Again, I wonder what issuer reaction will be if this kind of gray market use really takes off. I can imagine that if stablecoins like USDC had been around when Backpage lost its payments options whether it wouldn’t have turned to it rather than Bitcoin. If it had, there’s no doubt the issuers would have gotten the same treatment from politicians as did the payments services that ultimately dropped Backpage. The key difference is that as (typically) ERC-20 tokens, it’s not clear to me issuers can do much to single out and prohibit use by particular parties.

I recently turned on my colleague Peter on to Cal Newport’s great book, Deep Work: Rules for Focused Success in a Distracted World, and Peter really took to it. Among other things, Newport identifies four different styles of work that are conducive getting deep work done: monastic, bimodal, rhythmic, and journalist.

Peter gravitates to the monastic, which means that he needs to seclude himself and shut off all distractions for extended periods of time so he can fully concentrate on research and writing. I have found the rhythmic strategy to work best for me. I wake up every day at 4 a.m., do a quick workout, and then focus on reading and writing for three hours. If I do that, it doesn’t matter too much if the rest of the day is consumed by shallow work like email and meetings that are beyond my control.

Aside from getting my deep work done and done first thing, I also have the most energy in the morning. By the afternoon my tank is out of gas. This morning I told myself I would write a blog post later in the day and that was a mistake. Writing this would probably be better and a lot more fun if I had done it this morning. That’s the other key to a rhythmic strategy: you have to be consistent or else you’ll soon find the shallows creeping in.