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In God We Trust: All Others Pay Cash.  — Jean Shepherd

Many well-known Bitcoiners say that bitcoin is money for enemies: Vijay Boyapati tweeted about it; Nic Carter has written on it; Peter McCormack and American Hold chanted that conclusion here. On these pages in January 2022, Mark Goodwin wrote: “Bitcoin simply must be for enemies, or it will never be for friends.”

It sounds good and it feels nice, drop-mic style, but what does it mean for bitcoin to be for enemies? Or any money for that matter? What is the trustless, decentralized nature of bitcoin bringing to the table?

One answer is that bitcoin doesn’t care about your opinions, including your assessment of potential trading partners. It works, whether operated by friend or foe. That’s true, but holds for every other money, too: With fiat, I can shop for groceries from strangers and heretics just fine. Another is that bitcoin allows people to transact peacefully without knowing about the other’s status as an enemy. That’s true but holds for every other money, too: We don’t vet baristas for their ideological righteousness before we order a cup of morning coffee.

Perhaps it’s about censored transactions, where buyer and seller are happy to transact but a third party (politician, bank, payment processor, law-enforcement) stands in the way and blocks the payment. That’s an improvement that bitcoin and other bearer assets like gold or cash bring to the monetary table, but it doesn’t imply that the traders are enemies.

In the past, I have shown that the more developed bitcoin’s ecosystem becomes, the more it resembles the incumbent monetary system it hopes to supplant. Not that it must degenerate, become captured, or start working for a select group of ideologically suspect insiders’ ends, but that it hits some unavoidable obstacles of our monetary world. Matt Levine at Bloomberg agrees: “[...] crypto rapidly recapitulates the history, and re-learns the lessons, of traditional finance. I don’t particularly mean this as a bad thing. Learning is good!”

Many lessons from deep financial history, observes Levine, are “buried tacit knowledge; the traditional financial system does lots of things, and it does most of them for good reasons, but often most people have forgotten what those reasons are.”

In fact, almost everything that makes money workable in the normal world is present in bitcoin, too. That’s why it can operate as a monetary asset, why it can so successfully settle trade, and why it can operate as a global payment rail.


Goodwin’s quote above is interesting and, I suspect, wrong. Bitcoin isn’t for friends. Indeed, an economy of friends doesn’t need money at all. (They might want a unit of account to keep track of and balance favors, but among friends in good faith, even that can be worked out through barter.) This is the reason that G. A. Cohen’s famous camping trip analogy initially works: In “Why Not Socialism?,” Cohen posits a real-world situation where friends provide according to their abilities and receive according to their needs. Since we all do that when we go away together, why couldn’t the world operate on those premises, too?

Plenty of people have taken that idea apart, in the narrow example of the camping trip and more broadly for a wide world where we don’t know everyone, don’t want what is best for one another, don’t feel OK being charitable with our contributions. In fact, families are the world’s only functioning socialist communes — and they don’t operate on money. Instead, they operate with trust, with unspecified favors mentally accounted for (or charitably given), and unstated responsibilities in accordance with their respective roles. In a word: credit. Friends can operate on trust, and that’s cheaper (less resource-intensive) than money.

Long before Satoshi, monetary economists had worked out this point: In a world with complete commitment and full trust in one another, agents don’t need money and can instead rely entirely on credit. If you have complete commitment and full trust in each member of the economy — small or large — you can sidestep the resource cost that money entails (its real ones in gold or bitcoin, or its indirect ones under monetary fiat). The imaginary record-keeping of credit suffices. Stefano Ugolini, a scholar of central banking at the University of Toulouse, writes in typical monetary economics lingo: “The frictions that are needed to make money essential typically make credit infeasible and environments where credit is feasible are ones where money is typically not essential.”

For money to improve upon a rival system that operates entirely on credit and trust (like our friendship-camping story above), the models that monetary economists have developed suggest that agents

can’t have perfect memory about past trading partners (or anonymity);

must have a limited ability to commit to and enforce promises; and

have the opportunity of one-shot transaction (e.g., strangers coming into town).

That sounds a lot more like our world than the models that monetary economists play with. We are, in other words, squarely in the setting where money is essential. Money is the settlement of trade when we don’t, or can’t, trust one another; when trades aren’t of a repeated kind; or when transactional commitment devices to one another aren’t strong.

Now we're getting closer to the familiar Satoshi lines, whether or not (s)he was aware of the monetary economics having reached that result decades prior: “The root problem with conventional currency is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible.”

One of the most foundational articles of monetary economics is “Evil Is the Root of All Money,” by Nobuhiro Kiyotaki and John Moore, inverting the old biblical line. They set up the long-standing monetary markets of trade and investigate the double-coincidence of wants condition that has been used as a justification for money since William Stanley Jevons coined the phrase in the 1875. They show that it isn’t the only, or even the most important way, to make money viable in an economy — especially money in forms that have no other economic use (i.e., what monetary economists mean by “intrinsic value”). Instead, they show that lacking commitment and “factoring in a lack of trust” is primary, even “the starting point for a theory of money.”

A few years before, then a Minneapolis federal economist, Narayana Kocherlakota showed that “money is merely a primitive form of memory.” Notice the Bitcoin connection here, for what are blocks with UTXOs but a long spreadsheet of transactions acting as monetary memory?

Without commitment, either money or memory will do. Bitcoin, in a sense, is both.

Money overcomes issues of trust because “any function performed by money can be provided by an ability to access the past of one’s trading partners.” Kocherlakota explains: “In the monetary environment, when an agent gives up resources today, he receives money which can be used to purchase resources next period. Analogously, in an environment with memory, an imaginary balance sheet is kept for each agent. When an individual gives consumption to someone else, his balance rises, and his capacity for receiving future transfers goes up. When he gets consumption from someone else, his balance falls, and his capacity for receiving future transfer declines. In the monetary environment, money is merely a physical way of maintaining this balance sheet.”

This points to how, when money is doing its job well, it expands the feasible opportunities for all of us to trade. A proper money improves on the trades available to us in the absence of money. A proper money provides us with truthful signals about scarcity and wants, what’s economically available and what people demand. The purpose of intangible tokens, or even shining metals that don’t seem to do anything, is to be a technological innovation that facilitates trade, as William Goetzmann so convincingly illustrated in his great book, “Money Changes Everything: How Finance Made Civilization Possible.”

Thus, speaking of the resource cost of money was always a red herring. By expanding trade and the division of labor, by overcoming the issue of imperfect trust, memory or commitment, money and a sound monetary regime adds value to society. It improves our economic well-being rather than wastefully take away from it.

Another monetary knot that bitcoin elegantly solves is Armen Alchian’s justification for money institutions as least-cost inspectors of the monetary token: “Anyone buying second-hand paper also has to verify its authenticity, which slows down the speed of transaction. […] Ignorance leads to the use of money and how money requires concurrent exchange with specialist, expert, highly reputable middlemen.”

Bitcoin bypasses the middleman and achieves in the modern digital world the trustlessness of bearer assets of ages past. It is instantly verifiable, its inclusion in a prior (valid) block trivially easy to inspect. It is the very improving technology that Kocherlakota identified in the 1990s and Goetzmann chronicled more recently: a collective memory, a record of past dealings.


If we think of enemies as those we don’t (fully) trust or can’t (fully) commit to — so almost everyone we encounter in the modern world — Bitcoin isn’t for enemies. Every money is for enemies. We put trust in friends and family and loved ones, and with them we can, therefore, operate mutually beneficial exchanges without much resort to money.

But it is when trust is missing and credible commitment isn’t available that money comes into its own. Saying that bitcoin is for enemies is trivial: Every money is for settings where we can’t fully trust our trading partners.