Cryptocurrency Wars: BTC's Pizza and the Ambition of Crypto Dollars

This article is dedicated to the fourteenth Pizza Day when BTC couldn't buy pizza, and to the crypto community that is not part of the mainstream culture.

Fourteen years have passed in the blink of an eye, and the crypto punks are celebrating the fourteenth global Pizza Day.

This holiday commemorates the legendary purchase of two pizzas by crypto pioneer Laszlo Hanyecz with 10,000 BTC. This was not only the first transaction in the history of cryptocurrency but also represented BTC fulfilling all the functions of money. It marked the official entry of digital cryptocurrency onto the global monetary stage, opening a new market for the world's adventurers.

Fourteen years later, even though the price of BTC has multiplied billions of times, pizza still tastes the same. To buy pizza with BTC, one still needs to convert it to fiat currency (except in El Salvador and the Central African Republic). While BTC has made significant strides in value consensus, its application consensus has stagnated since Satoshi's departure. Satoshi's vision of a "peer-to-peer electronic cash system" remains technically feasible but lacks practical implementation.

Due to the slow adoption of BTC applications, the current situation has emerged: BTC is surrounded by stablecoins and other cryptocurrencies like XRP. In global convenient and cheap remittance systems, and in black markets with anonymous currencies, BTC's share is continually being eroded. Global currency is a significant interest: to capture it, the U.S. government, in collaboration with Wall Street, aims to use the digital cryptocurrency payment market created by Bitcoin to further expand the dollar's hegemony.

At the beginning of the article, let's ask a question:

When did the habit of paying salaries in BTC by crypto organizations come to an abrupt end? When did various airdrop operations that gave away BTC turn into giveaways of dollar stablecoins and altcoins?

As crypto faith weakens, the market liquidity logic of the crypto community has undergone a qualitative change. After 2021, how many people entering the community still insist on BTC and ETH standards? When the intermediary status of BTC and ETH in transactions is shaken, and their pricing is controlled by Wall Street, the valuation of the entire cryptocurrency market falls deeper into the hands of the U.S.

Dollar stablecoins have taken over the intermediary functions of BTC and ETH in transactions, weakening their value capture.

In decentralized exchanges, BTC and ETH can still hold the main market:

In centralized exchanges, however, a large number of trading pairs are calculated in dollar stablecoins, far exceeding those of BTC and ETH. The pricing power of cryptocurrencies has already begun to be eroded even before Wall Street locks BTC and ETH into ETFs.

Thus, the market originally supported by BTC and ETH prices has become a vassal of dollar hegemony. The identity of digital cryptocurrency holders and traders has shifted from liberal crypto punks to short-sighted sources of dollar liquidity and supporters of dollar hegemony.

The current situation is inevitably somewhat bleak.

Desire: America Devours Global Finance

This is the Call of the Crypto Era

The blockchain system is a revolutionary systemic technological innovation. Decentralized payments not only replicate the functions of Alipay, reducing cross-border payment times from days to seconds, but also create a low-cost, multi-party trust transaction environment. This trust, when applied to transactions, reduces transaction costs, and when applied within organizations, gives rise to new organizational structures. Despite the futile resistance of vested interests in the old world, the world's elites have never given up on integrating blockchain technology into the traditional financial system. BIS and WB continuously provide policy guidance on crypto assets and even DCEP in their documents.

In the grand scheme of things, all sovereign states capable of issuing fiat currency will consider how their national currency should stand in the new monetary environment. The blockchain accounting method solves the trust issue between financial entities and is the latest form of currency occupying a productivity advantage. Combining blockchain technology to issue digital fiat currency has become the only choice for major powers. China and Europe are on the same path, introducing blockchain technology to rebuild a payment and settlement system. Comparatively, China is relatively ahead: China issues its digital encrypted RMB within its self-built alliance chain. The European Central Bank, after two years of research, found that their digital asset system could achieve TPS 40,000 concurrent transactions, laying the technical foundation for further developing the digital euro. In contrast, the U.S. adopts a more open attitude. After all, the U.S. has a history of private banks issuing currency, and the U.S. government does not absolutely reject private companies issuing digital dollars. So far, the scale of centralized and decentralized stablecoins has exceeded $160 billion, bearing the primary liquidity responsibility of global digital cryptocurrencies. Although the digital dollar is not issued by the Federal Reserve, its market acceptance undoubtedly far exceeds that of other competitors.

Issuing crypto asset fiat currency is the most effective and direct way to counter native crypto asset tokens. This is something that BIS and the World Bank do not shy away from.

Not only will currency be encrypted, but assets will also be encrypted. The massive encryption of assets will form an integrated global financial market, commodity market, and service market. Whoever can keep up with the rapid development of encryption and capture the largest market share will gain the greatest benefits.

This is the Benefit of Issuing World Currency

During the pandemic, the U.S. base currency was massively overissued. The Federal Reserve's balance sheet expanded more than double after the pandemic. To address this overissued credit currency, balance sheet reduction is an inevitable choice. Besides, if a new market can be provided for the overissued base credit currency, it can also support the excess credit from the demand side and support the valuation of the dollar.

Crypto dollars erode the crypto liquidity market. In contrast, the crypto world is not just a free land without a master; any currency can freely compete on it. Tether and Circle's dollar stablecoins not only dominate the third and sixth positions in the cryptocurrency market cap rankings but are also important general equivalents in the crypto world, possessing the highest level of liquidity. Due to the high volatility of native crypto assets like BTC and ETH, using dollar stablecoins as a risk-averse asset has become a consensus among crypto world natives. This undoubtedly lays a solid foundation for the U.S. financial conquest of the crypto world.

Crypto dollars not only erode BTC and ETH's liquidity market in the crypto world. The crypto world spans traditional financial markets worldwide. Its decentralized nature makes it difficult for traditional authorities to regulate. Therefore, crypto finance not only borders the markets of various countries but has also deeply integrated and penetrated these sovereign markets. The World Bank's report reflects this: cryptocurrencies pose higher regulatory requirements. Due to regulatory and demand factors, cryptocurrencies are more popular in emerging countries and impoverished regions. In areas like Turkey and Zimbabwe, where currency credit has collapsed, digital currencies, including dollar stablecoins, have entered circulation. Crypto OTC kiosks are ubiquitous on the streets of Turkey.

"Erosion" represents enormous benefits. Behind every centralized stablecoin is nearly 90% U.S. Treasury bonds.

In USDC, over 90% are BlackRock-managed money funds, and these funds hold only U.S. Treasury repurchase agreements and U.S. Treasuries themselves.

Behind every dollar centralized stablecoin is 0.9 dollars of U.S. Treasury bonds. Dollar stablecoins provide a better value measure and transaction medium for the digital crypto world. The liquidity demand of the digital crypto world also provides the U.S. Treasury bonds behind them with the value capture or value support that any token economist dreams of.

This is Wall Street's Meal Ticket

We must understand that the predecessor of the Federal Reserve was a commercial bank cartel. In the early days of the Federal Reserve, the right to issue currency swung between core commercial banks and the government. Most financial institutions died from a lack of liquidity; having their own water pipe ensured their own land was drought-proof. This is why Wall Street has always harvested global markets. However, having the credit power in the hands of the government is not as satisfying as holding it oneself. Nowadays, mainstream centralized stablecoins are just a trick of turning commercial paper and money market funds into dollars. Take USDC, for example, only 10% is cash reserves, and the rest are assets in the money market managed by BlackRock.

(https://www.blackrock.com/cash/en-us/products/329365/)

This ability to directly monetize assets can be described as turning stone into gold. Previously, only the Federal Reserve had this ability; now, as long as one can become a stablecoin issuer, one can share the seigniorage of providing credit to emerging markets.

Besides, having the faucet in one's own hands truly allows for unlimited ammunition to bottom out.

The tokenization of the financial industry is a vast unfolding canvas, representing a revolution in the financial sector.

Currently, RWA (Real World Assets) brings real assets onto the blockchain, not only allowing dollar assets to be sold globally at low cost, expanding the buyer market, but also promoting the dominant financial services of the United States worldwide. So far, global investors entering the U.S. capital market need intermediary brokers. After completing KYC and opening an account, they still need to convert their currency into dollars and transfer it to the broker's designated account. Personal cash accounts and investment accounts are fragmented and cannot be integrated. Brokers' operational qualifications need to be obtained in each country. This cumbersome cross-border financial market structure will be replaced by a simple wallet + front-end and token + blockchain. As long as the money is on the chain, combined with decentralized KYC, you can participate in all eligible financial transactions. RWA can even use U.S. financial services to finance projects in developing countries.

The industrialization and standardization of token finance inevitably introduce more service industries. When Silicon Valley leads industrial innovation, we use dollar stablecoins to participate in liquidity provided by Wall Street, regulated by the SEC. Where should we find lawyers? Where should we find tax accountants? Whose policy guidance should we follow? Whose favor should we seek? The answer is self-evident.

The expansion of the industry, accompanied by financial leverage, securities, and token issuance, will bring direct credit asset wealth to Wall Street. The industrial influence gained by the U.S. through industrial erosion will enable U.S. capital to continuously reap benefits in the future.

The Besieged BTC

Due to anti-money laundering and anti-terrorism requirements, even payments face compliance pressure. Therefore, the current situation is: fiat currencies firmly hold the payment track, while stablecoins compete for BTC as a transaction medium.

Payment Track

If the advantage of crypto assets is on-chain constraints, then the advantage of the dollar is off-chain payments.

Crypto asset dollar stablecoins have both on-chain constraints and off-chain payments.

Through crypto accounts and signatures, centralized dollar stablecoins have the backer's encrypted signature. In terms of landing payments, U.S. financial institutions are already well-prepared.

Currently, the most common digital asset stored value cards mostly use Master or Visa to complete the last mile. Master and Visa are like community gatekeepers; whichever delivery service they allow in gets a ticket to the global real-world payment market.

Even without stablecoins competing for the position of on-chain transaction media, all off-chain payments cannot bypass the coercion of licensed payment institutions. Master and Visa have the world's most extensive payment interfaces, forcing digital crypto stored value card issuers to follow their rules: settle in dollars. As long as the card-issuing institution can perform standard KYC and AML, and compliantly convert various crypto assets into dollars, U.S. financial institutions can complete global payments for the holders. Payments by Binance and Dupay are completed in this manner. In this process, digital crypto assets only exist as financial assets or stored value means and are insignificant in the payment link.

For most non-crypto people, paying with stablecoins is more intuitive and convenient.

RWA Track

Using a global decentralized network, financial services from various countries will face zero-distance competition. BTC's peer-to-peer cash system is also a form of financial service. Under these assets more related to fiat currencies, stablecoins as the cornerstone for underlying currency are more convenient.

One of the biggest characteristics of digital crypto assets is their penetrability to financial regulation. Because they are both decentralized and anonymous, regulatory agencies in various countries are actually helpless against them. Unlike financial institutions entering a country, which must comply locally and obtain local business licenses, Web3 is the unclaimed land promised by Satoshi Nakamoto to crypto enthusiasts. Issuers of digital crypto assets can conduct business on the chain without setting up offices or other branches on the ground. Dollar stablecoins in the payment field have higher predictability and are more easily accepted by the public. However, just having payment functions is not enough; they also need to have financial management functions like Alipay. Wall Street can provide customers with a ready-made set of compliant financial products to meet various needs of different groups. This allows the public to take over from the U.S. government once and then from Wall Street again.

Compared to decentralized exchanges, centralized exchanges have much better liquidity. Binance and OKX are quality exchanges, but aren't the NYSE, Nasdaq, and London Stock Exchange also quality exchanges? Why can't the penny stock market and small-cap stocks on them become shell resources for memes? Many small penny stocks and sub-penny stocks can catch this wealth by changing their names and stories to reflect on the chain. SBF did it, but unfortunately, he didn't catch the good times of today's memes.

Compared to BTC, most of Wall Street's financial assets are denominated in dollars, including bills, commodities, stocks, and fixed assets. Establishing trading pairs pegged to dollar stablecoins and providing leverage for dollar stablecoins not only aligns more with user habits but also reduces risk. We can even see that because USDC is more compliant than USDT, many RWA projects prefer USDC.

While exporting U.S. financial services worldwide, RWA has also built a more suitable application scenario for dollar stablecoins. Stablecoin holders can consume while enjoying consumer finance.

Blockchain Track

Blockchain technology is a decentralized ledger system that fiat currencies cannot replace. Secondly, most digital crypto currencies have strict token issuance disciplines, which no country's central bank can execute. Therefore, in the future, blockchain technology is irreplaceable. There is chain-level sovereignty on the blockchain: BTC's accounting currency is BTC, and ETH's accounting currency is ETH.

To prevent BTC from becoming too dominant, cultivating competitors is a means. Besides BTC, ETH, Solana, Cosmos, Polkadot, and various layer2 solutions have emerged: they can do what BTC can do, and what BTC cannot do, these newcomers can also do. This diverts BTC's attention and reduces BTC's monopoly.

Breaking BTC's monopoly and increasing competition in the blockchain track is essentially a good thing. But in the competition between fiat currencies and native digital crypto currencies, splitting the crypto market and dispersing BTC's value consensus is more beneficial for Wall Street to control the pricing of BTC and other native crypto assets. It is more conducive to forming an industry pattern favorable to Wall Street and further forming a digital crypto asset pricing system based on the dollar and dollar stablecoins, further enhancing the status and weight of dollar stablecoins as a transaction medium in the crypto world.

Ideological Branding

To kill and destroy the heart, this is what the United States wants to do and is doing now.

In the primary and secondary markets, what is ingrained in our minds is dollar pricing and dollar equivalents. How much did this project raise in dollars? What is the valuation of that project in dollars? Once upon a time, we forgot that ETH financing was paid in BTC, and many early projects like EOS, DAO, Near, 1inch, DANT, and BNB used BTC and ETH as financing means. We forgot the years when we used BTC and ETH to price project valuations. The ideological clampdown is the real reason for the loss of liquidity in the crypto world.

Throughout human history, the core cohesion of a country is cultural identity. What is being done now is to destroy the culture and ideals of cryptoism. How many newcomers who entered the circle after 2020 have read the Bitcoin white paper? How many have seen Satoshi Nakamoto's letters? How many know about the Austrian School of Economics and have reflected on its value and feasibility? Some say that NFT and Meme are massive adoption. I raise a middle finger; this is the massive adoption of the crypto circle, not the torch passed down from Satoshi Nakamoto. Through several bull markets, crypto veterans have been arrested or left. In the crypto world, crypto ideology is no longer mainstream. As the U.S. wishes, the cultural fault line has already formed.

When the faith of an organization collapses, all order will fail, and every individual will desperately seek benefits for themselves. Isn't this the most realistic portrayal of the current market and industry?

Postscript

Another Form of Progress: U.S. Credit De-intermediation and De-monopolization

The dollar, as the world currency, sweeps the globe through the pervasive digital crypto network, backed by the power of Wall Street. For various countries, this is bad news. However, for the world, it is a form of progress. The Eurozone was gradually formed based on the consensus of European countries, coordinating national fiscal and monetary policies for many years, based on the Mundell theory. This process took decades and left serious aftereffects.

In contrast, the dollar's erosion of global finance through digital cryptocurrencies is done "silently." Many countries' monetary disciplines are not as good as the U.S., and their monetary credit is certainly far lower than the dollar. But due to payment requirements and the financial environment, many people have to choose to hold local currency. Countries will back their currencies by holding dollars and U.S. Treasury bonds.

In fact, the credit transmission here is that the U.S. government's credit is transmitted to a country's government through U.S. Treasury bonds and U.S. assets, and the country uses this credit to back its currency issuance. In this chain, the country's government is an intermediary. We recognize that de-intermediation and breaking the intermediary interest pattern is valuable.

Moreover, this move makes the global capital market more integrated, breaking local forces' monopoly on local financial resources.

Although the globalization of crypto dollars has not achieved decentralization, it has achieved de-credit intermediation and accelerated the integration of global finance. Objectively, this is also progress in financial history.

The Best is Yet to Come: The Rebirth of Crypto

Previously, I thought I was a native of the crypto world. Actually, I am not. I resonate with the liberalism advocated by BTC due to my past experiences and am willing to take the ideals of cryptoism as my ideals and goals. Our generation does not have the original...

Residents, we do not have enough time to embrace the baptism and call of cryptography and crypto culture. Generation Z is just the first generation of the internet.

In twenty or thirty years, those truly born and raised under the influence of cryptographic technology and culture will have grown up. They will be reading the BTC white paper, studying cryptographic algorithms, playing with NFTs, and enjoying the convenience of DePIN. In their minds, there will no longer be distinctions between China, the United States, the East, or the West. By then, decentralized technology will be more advanced, the cost of decentralization will decrease exponentially according to Moore's Law, and the drawbacks of centralization will be evident in the culture and understanding of decentralization.

By then, a spark can start a prairie fire. Perhaps a free and harmonious world will emerge from the hegemony of the US dollar.

Note: The content and viewpoints of this article were inspired by Deschool founder Rebecca and Polygon developer relations BrainSeong, to whom we express our gratitude.

References:

Bitcoin White Paper:

https://bitcoin.org/bitcoin.pdf

Geography of Payment Finance: Crypto Adoption from a Global Perspective:

https://s.foresightnews.pro/article/detail/48294

Eurosystem launches digital euro project:

https://www.ecb.europa.eu/press/pr/date/2021/html/ecb.pr210714~d99198ea23.en.html

White Paper on the Progress of China's Digital RMB Development:

http://www.pbc.gov.cn/goutongjiaoliu/113456/113469/4293590/2021071614200022055.pdf

The Crypto Ecosystem: Key Elements and Risks:

https://www.bis.org/publ/othp72.pdf