Bitcoin Can Fix Payment Infrastructure

I’m not a big fan of governments, and I’m really not a fan of bloated bureaucracies. I harbor the controversial opinion that HR departments and administrator roles are net negatives for any organization: it’s rare to find an administrator who knows what they’re doing or an HR person who adds value to their organization.

Half or more of all new hires fail — which, if I were an interviewer or in a recruiting role, I would be horrifically ashamed of. Your ability to discern talent and match your team’s needs with the pool of interviewees is little better than a coin toss. (Some well-documented reasons: gut feelings aren’t accurate, one’s ability to do the job is uncorrelated to one’s ability to fool an interviewer or look impressive in artificial interview settings, an HR-obsessed interviewer’s ability to discern work ability is roughly nonexistent).

The Bureaucratic Obstacles For Exchanging Value

I recently tried to get paid by a client in the U.K, through their university affiliation — these learned institutions of forward thinking. It turned out to be quite the hassle. In addition to my main client, I counted seven separate administrators involved at one stage or another, plus two more sign offs for releasing the funds. The process took four months, with plenty of forms, documents and emails lost along the way. Oops.

At the end of it, they still — erroneously — withheld one-fifth for taxes and social contributions, which I had to spend another few hours figuring out how to claim back via my own and British tax authorities. Hassle, nonsense and useless transaction costs all around.

One thing that made the operation more difficult was that I didn’t easily fit into the established boxes incumbent organizations have used for decades. There used to be domestic employees, for whom employers pay social fees, pension contributions and withhold income taxes. Easy. I was not an employee; I was a citizen in one foreign country, resident in another and frequently nomading through a third or fourth; and it was altogether unclear which social fees or other bribery the university had to pay the government for the privilege of rewarding me for the value I had created for one of their staff.

What baffles me isn’t that university administration is bloated, captured, incompetent and behind the curve – that is all well established – but that a large research university is so ill-equipped for working with non-standard remuneration.

Surely, you would think, freelancing is common enough these days that you should be used to it. Old rules — their internal ones or those imposed by similarly incompetent governments — that rely on people’s “domicile” or “nationality” are completely outdated in a world where the places in which we are born, live, eat, work and play are different. I understand that an individual employer might be stuck in outdated legal rules that force them to take into account the physical location in which their suppliers had performed the work (correct answer: none of your god-damn business), but that just proves my point: we’re running a 21st century economy on mid-20th century infrastructure. Try doing today’s work with computation or machinery from the 1950s.

Does Fintech Solve The Problem?

After countless documents and email chains back and forth, the issue came down to payment. When processing, they realized that the bank details I had given them were British — as Wise, a fintech unicorn, holds a settlement account in the Bank of England settlement system, the first non-bank to do so. Naturally, that wasn’t going to square with the archaic rules, and one of the kind administrators asked me for international bank details instead.

“Hmm,” I thought. “Let’s play with them.”

So, I gave them payment details to another British fintech, Revolut, which recently acquired a banking license in Lithuania (recently having joined the European Exchange Rate Mechanism [ERM] and adopted the euro). It thus looked like the payment went to a Lithuanian bank, enough to persuade the administrator that she had fulfilled her official duties.

What’s interesting about that is that Revolut, as a regulated emoney service provider rather than a bank, holds deposits in ring-fenced accounts with depository institutions – in Revolut’s case, it holds pound sterling deposits at British high-street banks Barclays and Lloyds. This is similar to how PayPal operates, pooling customer funds in their accounts at regulated banks or in liquid government bonds. A user gives up FDIC protection and interest payments in exchange for the convenience of operating with PayPal or Revolut’s interface.

What happened in my case was that the university moved funds from a pound sterling account in the British banking system to another pound sterling account in the British banking system, with a foreign-registered entity in between, such that the law-abiding administrator could claim that they hadn’t made a domestic transaction. Yes, legacy banking interacting with outdated rules and regulations are exactly as nutty as they sound.

How Bitcoin Solves The Payments Bureaucracy

Few people understand international payment networks. That, I chuckle, quickly undermines a favorite FUD accusation levied against Bitcoin (“It’s too complicated to understand!”). Well, they understand the legacy system even less, but rely on it nonetheless. Three-quarters of Brits think they own the funds in their bank accounts. Sixty-eight percent of Austrian respondents think that bank deposits and cash are backed by gold. Some four-out-of-seven Americans are considered “financially illiterate” in simple tests that usually involve calculating basic interest or understanding what inflation does to your purchasing power.

They imagine SWIFT, the messaging network that banks use internationally to validate funds in correspondents’ accounts, working a bit like postcards, or maybe emails. I press send or pay for a stamp on the postcard before I put it in the mailbox, and the email service (digitally) or mailman (analog) carry the package to its receiver.

Banking hasn’t worked that way for centuries, if ever. Instead, banks clear liabilities against one another. Internationally, they hold accounts with each other and ensure global transactions by crediting or debiting their accounts while confirming the action through SWIFT. Money as we think of it (the number you “see” in “your” account on the banking app) usually isn’t even money — it is debt claims against the bank (Chase, Barclays, etc). Banks, in turn, hold master accounts with the country’s central bank where, through clearing of respective liabilities, settlement transactions between banks take place.

Since nobody gets this, we shouldn’t be surprised that they don’t see how Bitcoin is different.

Bitcoin operates on an entirely different promise: one of assets instead of debts. Bitcoin is a monetary commodity without counterparty risk. It’s a trackable and verifiable bearer asset that doesn’t correspond to a liability elsewhere in the system. It is said that gold is “the only financial asset that isn’t someone else’s liability.”

Sent across the world, or across the living room, bitcoin does operate like the email/mailman model we keep in our heads. It is backed by something other than a government’s word (the network effect of uses and energy expended in its production). It is not somebody else’s debt.

A Bitcoinized world wouldn’t necessarily solve my recent bureaucracy problems — at least not as long as we still have large governments, high taxes and individuals and companies that dutifully report their activities. In that world, I’d still receive the value of what I produced, less whatever my government overlords deem their share, but to a Lightning Network channel or on-chain address instead. That changes nothing. As a monetary technology, Bitcoin doesn’t solve these institutional, economic and social problems. What we need is the accompanying ethos of Bitcoin: of taking responsibility for oneself, of independence of cyber hornets, of f*** off, of extreme reluctance to having others pillage what is yours.

We need a radically new approach to how we do things, where outdated hierarchies and organizational functions are out; independence, responsibility and self-sufficiency are in.

What we need, in other words, is for Bitcoin to usher in a society where we don’t rely on taxes and money printing as the method for saving for the future, for ensuring our access to services, or the upkeep of various infrastructure. We need the ethos of Bitcoiners much more than the tech, money or investment itself.

This is a guest post by Joakim Book. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

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