The Financial Anarchist: Reclaiming Sovereignty with Nostr and Chaumian Ecash
"Anarchy is order; government is civil war." – Bellegarrigue
The advent of decentralized money, embodied by Bitcoin, ignited a captivating cognitive bias among early adopters. Bitcoin’s success convinced many that we could eliminate trusted institutions entirely, that trust itself was a relic of the past. This hubris is reflected in how we allocate resources and capital. In the absence of suitable social structures, we’ve become risk-averse and distrustful of each other. As a consequence, Bitcoin commerce remains marginalized, and many revolutionaries retreat into techno-utopianism. This complacency has deprived us of the tools required to navigate this digital economy. Between heavily regulated platforms and half-baked scaling solutions, alternative approaches are scarce.
This situation is dire: the majority of Bitcoin’s commercial activity relies on fiat interfaces. This inertia leaves users vulnerable to highly organized state actors. While our technical elite dreams up theoretical constructs, progress on practical solutions has stalled. Instead of stimulating market functions to replace current financial institutions, we have passively accepted their creeping authority.
This pattern is distressingly familiar in revolutionary movements: once wealth is secured, ideals often falter.
Fortunately, the convergence of two technologies – one old and one new – offers the potential to disrupt this status quo. Chaumian ecash, decades in development, and Nostr, a novel, decentralized social network, could provide the foundation for emergent behavior to surpass centralized planning. The Financial Anarchist seeks to harness this potential, challenging the incumbent system with decentralized alternatives. This journey embraces risk because it is right and just. It believes we can embrace and leverage trust instead of rejecting it outright.
For the Financial Anarchist, decentralization isn’t an end in itself, but a means to empower individuals and foster genuine economic freedom.
A Public Forum: Nostr, the Identity Layer
Nostr, like Bitcoin, doesn’t prescribe what its users should build. Instead, it provides a set of rules, allowing individuals to organize and create a foundation for emerging markets. These rules rest upon two fundamental principles: censorship resistance and decentralization.
Nostr achieves this through distributed servers called relays. Relays host content published by users and, thanks to encryption, can’t discriminate based on content type. Each user event is signed with a cryptographic key, and Nostr ensures its continued availability by distributing data across multiple relays. Users are also encouraged to run their own relays. To interact with this network of servers, participants use various software clients that can verify the authenticity of shared messages.
These features, among others, make Nostr a strong contender to become the identity layer for the online arena. Every individual is represented by a unique identifier tied to a public key, eliminating the concept of accounts associated with centralized platforms. Nostr heralds a new era of market prosperity, enabling individuals to break free from the constraints of the consumer internet. Identity is finally liberated from its fiat chains.
Nostr’s versatility lends itself to a constantly expanding range of use cases. Notably, it enables the creation of social networks for coordinating local and global marketplaces. An interesting trend is the integration of Nostr with Bitcoin payment applications. Utilizing the protocol for communication between Bitcoin services, we can achieve interoperability, allowing social graphs to be transferred to any supported application. Our network becomes an extension of our Nostr public key, enabling us to maintain financial relationships across platforms.
The Financial Anarchist envisions Nostr as the foundation of a new Serene Republic, the ultimate stage for trade and industry in the digital world. Here, we begin the process of self-discovery anew.
Reputation Markets: Building Trust on a Decentralized Ledger
Today’s reputation systems are entangled with fiat institutions, with public information about trade and commerce confined to centralized databases. An open and distributed record of trust is a significant step towards a legal system that mirrors natural laws. Based on cryptographic attestations of social connections, a functional Web-of-Trust can align user incentives and allow markets to thrive by significantly reducing the costs associated with enforcing fiat contracts and laws.
While this may seem improbable, informal systems like Hawala already rely on trust and reputation. Built on a global network of informal brokers, Hawala facilitates nearly half a trillion dollars in transactions annually. Rooted in centuries of accumulated trust and relationships, Hawala exemplifies the potential and resilience of self-regulating economies.
Nostr introduces a radical shift in our approach to reputation, promising to replace centralized certificate authorities with local and distributed trust archives. Relational databases can now be unique to each individual, informed by their voluntary interactions with other market participants. Simple discovery features can reduce information asymmetry and practically eliminate barriers to entry. Individuals new to Nostr only need a single trusted connection to uncover an entire social graph based on their peer’s relationships. Imagine the "recommended" feature of digital platforms, but open and extended to every facet of the market, based on your social network.
Nostr provides the tools to assess the integrity of counterparties and accurately gauge your position against them in the economy. It’s now possible to establish trust structures outside the purview of traditional internet platforms.
Economist Hernando De Soto has emphasized the importance of high-quality societal records as a defining characteristic of modern societies. Maintaining accurate asset and transaction records is crucial to economic prosperity. Nostr allows us to leap forward in this regard, finally reclaiming our information and data from the fiat overlords.
The goal isn’t to eliminate institutions or middlemen, but to democratize the provision of such services, favoring systems based on social accountability over centralized institutions and their monopoly on violence.
Electronic Cash: Reclaiming Local Finance
While Bitcoin makes significant tradeoffs to achieve global trust, the decentralization of finance should not be considered an end in itself. However, this misunderstanding has gained traction, leading to conflicts of interest and moral hazards.
A compelling alternative is to acknowledge and embrace the inherently local nature of finance: finance operates locally, while money functions globally. Attempting to decentralize finance as if it were money is a futile endeavor.
Chaumian ecash offers a different approach. Ecash is a medium of payment enabled by blinded servers. Using any form of collateral, a server can issue a corresponding number of tradeable notes. By design, Chaumian mints cannot identify individual payments, payers, or payees. Notes can be transmitted over any communication layer and don’t rely on third parties for settlement. The Lightning Network allows every Chaumian mint to settle with one another, enabling local finance to operate at a global scale.
Despite its remarkable features, ecash has been dismissed by casual observers due to its custodial model. However, this perspective overlooks its true potential. By distributing risk across smaller, local instances, we can address the systemic issues typically associated with custodians. Payments are inherently social, making intermediated finance a natural fit for many transactions.
The Financial Anarchist envisions a future where every Bitcoin wallet has access to the modern equivalent of a neighborhood bank. Leveraging their Nostr social graph, users will quickly identify trusted payment hubs within their network. Through this, ecash protocols will redefine banking and payment services. We can reduce finance to its simplest components, reversing decades of fiat-driven centralization.
Using Nostr as a coordination mechanism, we can empower communities to pool common resources and establish dedicated financial hubs. Individuals can interface with the Lightning Network by sharing channels and liquidity, providing cost-effective payments for every participant. Any group of users can collaborate to optimize their interactions with the Bitcoin network. Consequently, the convenience and user experience associated with custodial wallets will no longer be exclusive to large institutions.
Due to the protocol’s versatility, onboarding other users becomes trivial. Ecash notes can be issued for every payment request and used by the recipient to pay any Lightning invoice. Atomic payments allow ecash to integrate seamlessly with any wallet on the network without application developers modifying their code. Users can accumulate notes from different issuers or swap them into their preferred mint. Alternatively, distinct notes can be used to fund a single multi-party payment, offering incredible freedom and optionality. Members of specific communities might begin accepting a collection of different notes depending on their relative social proximity to the issuers. Mints could be distributed such that multiple operators issue tokens, effectively distributing the risk of user exposure to a single operator.
This free flow of payment will propel growth in various ways. First, a new class of dedicated users will emerge, advertising their services through various marketplaces. An area of particular interest is the provision of stable ecash notes. Thanks to its native programmability, it is possible to issue dollar-denominated ecash backed by Bitcoin reserves. This could have significant implications for the Bitcoin economy. Using the asset as collateral presents many opportunities to extend its market demand beyond its current speculative use cases. This could lead to a flywheel effect, providing the necessary liquidity for Bitcoin to stabilize over time and become a more reliable medium of exchange. Until then, the unique properties of ecash make it a superior option for payment applications, potentially challenging the current treasury-backed stablecoin hegemony.
The operation of stablecoin mints also creates compelling incentives for liquidity providers. By issuing dollar-denominated notes, they can establish non-custodial long exposure to Bitcoin and take directional bets on the asset. The distributed and permissionless nature of ecash operations contrasts with the centralization of current stablecoin issuers, offering market actors a way to hedge against single points of failure.
The adoption of this technology will undoubtedly encounter challenges, similar to the early days of Bitcoin and Lightning. While hobbyists and amateurs play a crucial role in bootstrapping ecash, creating a robust and reliable financial system at scale will involve growing pains. Opportunists may exploit trust, and the custodial aspect of mints makes them susceptible to scams and fraud.
However, safeguards can be implemented to mitigate these risks. One idea being explored is programmatic redemption, which would require issuers to regularly prove their solvency. Users would periodically "rotate" the notes in their wallets, exchanging them for new ones. Some have referred to this idea as "scheduled bank runs". The technical details could be abstracted away for a seamless user experience. Additionally, various "Proof-of-Liability" systems are under development to mitigate the risks of fractional reserves.
As a general rule, it is prudent to avoid holding more in ecash mints than you can afford to lose.
Conclusion: A Declaration of Independence
"We have no elected government, nor are we likely to have one, so I address you with no greater authority than that with which liberty itself always speaks. I declare the global social space we are building to be naturally independent of the tyrannies you seek to impose on us. You have no moral right to rule us nor do you possess any methods of enforcement we have true reason to fear. – A Declaration of the Independence of Cyberspace*
In an age where centralized authorities dictate the rules of financial engagement, the Financial Anarchist emerges with a radical proposition: to support an alternative system reliant on trust between individuals.
This isn’t a call for civil disobedience. It’s also not an attempt to undermine the valuable work of developers focused on trust-minimized technologies. It is the proclamation of the undeniable potential within our grasp as individuals to organize and utilize technology to elevate our communities.
The spirit of voluntary association at the heart of Bitcoin should drive us to maximize market optionality. Sadly, the paternalistic approach born out of techno-utopianism has failed in this mission, leaving us trapped within the constraints of traditional financial institutions.
The Financial Anarchist envisions a world where Nostr and Chaumian ecash enable us to reclaim this sovereignty. By opening up the design space for experimentation and locally-driven initiatives, we are making a conscious effort to divorce ourselves from the centralized command structure we’ve inherited. The vision of autonomy and self-regulation embodied by these tools reinforces the notion that individuals should be free to define their economic relationships on their own terms.
We must build new autonomous zones across cyberspace, away and out of reach from the "weary giants of flesh and steel" Perry Barlow warned us about. The current state of distrust in our ranks is not the natural order of things; it is the consequence of generations of imposed authority. It’s no surprise that today nobody even trusts their neighbor. If Bitcoin prevails, we expect this trend to reverse course and eventually foster levels of trust among individuals previously deemed unimaginable. Anything less would be a tragic outcome.
