No form of money has achieved the core properties of sound money, creating the Money Trilemma. The Money Trilemma claims that a form of money can only provide and maintain two of the three properties at any given time: a store of value (or salability across time), a medium of exchange (or salability across space), and a unit of account (or salability across scale). Solving the Money Trilemma implies three things: a) a perfect form of money is created, winning the world’s money war, b) the world’s first, stateless world reserve currency can be achieved, and c) decentralized finance is possible, as this hasn’t yet been the case. As I will show, Kaspa solves the Money Trilemma, achieving both a), b), and c).

This will be argued in a three-part series.

Part one covers the history of money and its core properties according to a good’s salability and unforgeable costliness. As shown, Proto-monies. The latter half presents a mathematical breakdown of Kaspa’s on-chain data to show how KAS will eventually surpass the stock-to-flow ratio of BTC. By doing so, we prove how KAS will become the hardest money in history and, therefore, the best store of value. Moreover, I argue how Kaspa follows a positive techno-economic feedback loop, ensuring self-adjustive systems.

Part two covers the history of proof-of-work and how it attempts to create the next form of salable money after metallic commodities (such as gold and silver). Moreover, it argues that proof-of-work blockchains, such as Bitcoin and Litecoin, cannot function as a medium of exchange due to their inability to scale and achieve salability across space. Kaspa solves this problem with blockdag ordering and expanding the physical limits of proof-of-work, creating the best medium of exchange and unit of account, and solving the Money Trilemma.

Part three argues how decentralized finance cannot exist without solving the Money Trilemma, as the idea of decentralized finance is currently a misnomer — it doesn’t yet exist. I argue this point by expounding the Two Visions Dilemma, which constitutes two core opposing visions of cryptocurrency’s use, purpose, and function, originating from the block size wars (2015–2017). Many have defined these two visions with differing terms; for example, Jason Lowery refers to them as abstract power vs. physical power,¹ and Nick Szabo refers to them as wet code vs. dry code.² The two visions approach can also be broken down as the constrained vs. unconstrained view, as Thomas Sowell theorizes,³ or as proof-of-work vs. proof-of-stake. Kaspa solves the Two Visions Dilemma in what I call the Kokoro-Nakamoto merge. 

A History of Money and its Attributes: Proto-Money Commodities and Unforgeable Costliness

Initially, money functioned as a credit-based ledger, either as social credits or through writing. Within trust-based circles (with trackable reputations), such as tribes, humans would keep track of one another’s chores and favors swapped over time, as a form of credit through a mental ledger.⁴ However, as tracking became more complex, written records were required, with scripts noting transactions, ownerships and credit.⁵ The oldest known written ledgers date back over 5,000 years to ancient Mesopotamia in the form of clay tablets, illustrating various commodities with dots representing their quantities.⁶ However, once trading occurred between outside circles, humans could no longer rely on trust-based ledgers, introducing the beginning of proto-money types, such as shells, collectables, wearables, and other commodity-like goods.

Nick Szabo, in his essay, “Shelling Out: The Origins of Money,” records the major proto-money types and their uses, stating,

“The precursors of money, along with language, enabled early modern humans to solve problems of cooperation that other animals cannot — including problems of reciprocal altruism, kin altruism, and the mitigation of aggression. These precursors shared with non-fiat currencies very specific characteristics — they were not merely symbolic or decorative objects.”⁷

The shared characteristic that these proto-money types followed were three-fold: first, they were secure from theft or loss, as the items were easily carried or hidden. Second, unforgeable costliness created their value; that is, such items could not be easily forged or replicated. Third, their value could be measured by simple observation.

The most notable examples of the proto-money types include western African Aggry beads, Native American seashells, and Yap Rai Stones. While their origin isn’t fully known, it is suggested that Aggry beads were made from meteorite stones, or passed on from Egyptian and Phoenician traders.⁸ They were a glass-type of bead produced in a region where glass making was expensive; thus, it was difficult to reproduce or forge them, — — creating a high unforgeable cost. However, because they were produced in different sizes and shapes, Aggry beads had no standard unit of accounting. Moreover, glass-making in Europe was not expensive; eventually European explorers and traders were able to flood the Aggry bead market by reproducing their glass-like characteristic in exchange for African goods. Due to the inflation of the Aggry bead supply, its unforgeable cost sank. 

Similarly, Native Americans used Wampum shells as a source of proto-money, for extensive trade amongst tribes. These shells were hard to find and thus could not be easily forged, carrying a high level of value. However, in the mid 1600’s, European settlers noticed the shell’s value and eventually inflated their supply as boating and harvesting techniques advanced. By 1661, the shells lost their value and monetary role.

Rai Stones from Yap Island were man-made into large circular disks with a hole in the middle, weighing up into the hundreds of pounds,⁹ and brought in from neighboring Palau and Guam islands. Due to their weight, the stones were never moved upon delivery; however, the owner could use the stones as payment without movement. The town would recognize the stone’s ownership and keep receipts until a new owner made a purchase. Titles, therefore, weren’t bounded by distance. Moreover, fractions of a single stone could also function as a payment form. The stone’s were difficult to make, providing a high unforgeable cost, and couldn’t be lost or stolen due to their significant weight. 

However, this soon changed in 1871 when an Irish-American boatsman, David O’Keefe, discovered the stones. O’Keefe attempted to recreate the stones (via more modern tools and explosives) in exchange for the island’s coconut supply. The Yap islanders refused the recreated stones and instead valued older stones made by hand. Nevertheless, the change in value — preferring older stones to new — limited the stones’ fungibility as a medium of exchange.¹⁰

The downfall of proto-money, regardless of its type, was the same: its supply was easily inflated by foreign technological advances. This was also the case for other commodity-like goods that functioned similarly to proto-money, such as grain, livestock, and salt. Nonetheless, the failures of proto-monies created a framework for salable money.

A History of Money and its Attributes: Mediums of Exchange and Salability 

The exchange for goods was first brought about through direct exchange, otherwise known as barter. Barter works effectively if person A makes X and person B makes Y, whereby person B wants X and person A wants Y. However, the problem of the coincidence of wants arises, whereby person B may not want X and Person A may not want Y; Or as Carl Menger puts it,

“The most basic problem of coincidence of wants: ‘A’ wants something that ‘B’ has, but ‘’B’ only wants something ‘C’ has, and ‘C’ wants something ‘A’ has.”¹¹

In other words, what you want to acquire is produced by someone who doesn’t want what you have to sell.

Saifedean Ammous, in his book, “The Bitcoin Standard: The Decentralized Alternative to Central Banking,” breaks this problem down succinctly, as the coincidence of wants problem is three-fold. First, what one has wants may not be equal in value to what they have and the division of what one has may be impractical. For example, it would be impractical to exchange loaves of bread for a car and you cannot buy the car in fractional pieces equivalent in value to a single loaf of bread; moreover, it would be very unlikely that a car owner would want to sell their car for a stockpile of bread. This problem is a lack of coincidence in scale.

Secondly, there is a lack of coincidence in time; for example, a person may want to buy something durable with high forgeable costliness but what they have to sell is easily perishable. Going back to our last example, if a car owner actually wanted to trade their car for a stockpile of bread, the bread may become stale before the deal can even be finalized. Lastly, the lack of coincidence of location occurs, whereby goods may not be easily portable for exchange; Ammous uses the example of trading a house in one location for a different house in another location. 

To solve the threefold problems of the coincidence of wants, indirect exchange is required, whereby a third intermediary good is used. This intermediate good becomes the medium of exchange. As explained by Schär and Berentsen, in their book, “Bitcoin, Blockchain, and Cryptoassets: A Comprehensive Introduction,”¹² there is progressive number of possible pairs between tradable goods within a barter economy. If we have an arbitrary number, n, of different goods, there will be n(n-1)/2 different pairs of goods. However, if one good is accepted by all members of an economy, the relevant number of tradable pairs of goods is reduced by the factor n, whereby only n-1 potential pairs of goods remain — as shown in the image below.

As we saw with proto-money types, almost anything could be used as a medium of exchange. However, certain attributes determine whether a certain medium can be used as a useful form of money or not. The medium functions as money if it is used or purchased solely for the exchange of other goods — it is not used or purchased for its own consumption or for the production of other goods (such as an investment). Investments and capital goods are distinct from money because they provide a return, involve a level of risk, and are less liquid. This distinction between money and financial investments will be particularly useful to understand in part three of this article series.

As Ammous puts it, 

“People’s choices are subjective, and so there is no “right” and “wrong” choice of money. There are, however, consequences to choices.”

Therefore, we must understand what the correct choices are for adopting a form of money. In his work, The Origins of Money,¹³ Carl Menger — often cited as the grandfather of Austrian economics — further explained the fundamental properties required of a medium of exchange to be the correct choice of money, stemming from one key property known as salability.

Salability is the ease with which a good can be exchanged on the market, or in other words, it lowers the economic costs for exchanging them. Salability allows for a good to have high liquidity, such that it is easy to exchange large sums without wide price spreads or a lack of trading volume. The dimensions of understanding salability are three-fold, as we understand salability across scales, space and time — it is never in a fixed constant, changes occur based on the state of affairs of economic and technological advancements.

The salability of a good across scale is the ease with which a good can be exchanged for different values. Can the good easily be divided into smaller units or grouped in larger units? If so, it’s salable across scale. Divisibility of a good into subunits is useful as it allows one to adjust the value of a good to reflect the exchange value of another good; and therefore, creates a diversity of exchange types. Moreover, fungibility is achieved as each unit is exactly like every other unit. 

The salability of a good across space refers to the ease with which a good can be transported or carried across distances, also known as the portability of a good. Moreover, salability across space achieves the likelihood of a good’s acceptability, as it provides cross-regional functionality. 

These two properties are more easily obtainable than the third; salability across time is the most crucial and difficult attribute for money to obtain. The salability of a good across time refers to its ability to hold value in the future; in other words, it’s the extent to which a good can function as a store of value. For a good to maintain its value, a mechanism (either natural or man-made) must be in place to restrict the supply of the good, achieving a higher level of scarcity. The difficulty of producing new units determines whether a medium of exchange is hard money or easy money. However, if a good is too rare, such that it’s too expensive or difficult for many to obtain or hold, its liquidity decreases and has little use as a form of money.

There are three necessary conditions for a good to be saleable across time: first, it must have unforgeable costliness (i.e., that which is expensive and difficult to forge, replicate, or produce). Secondly, a mechanism must be in place to restrict the ease of forgery, replication, or production. Lastly, there must be an objective supply instead of a subjective supply — thereby creating an objective unit of account. Money, therefore, must be a commodity. As Murray Rothbard states in his work, “What Has Government Done to Our Money?”¹⁴ money is not an abstract unit of account nor divorceable from a concrete good. It does not guarantee a fixed price level and differs from other commodities as it’s demanded primarily as a medium of exchange instead.

Determining the hardness of a good — and whether it achieves the three necessary conditions above — is best measured by the good’s stock-to-flow ratio. The stock of a good is its existing supply, including its past production minus what has been consumed and destroyed. The flow of a good is the additional production expected in the future. A good with a low stock-to-flow ratio can be easily inflated and therefore lose its value over time; a good with a high stock-to-flow ratio has a mechanism in place restricting the ability to easily produce more units and therefore maintains its value over time.¹⁵

Historically, no form of money has achieved all three dimensions illustrated above.¹⁵

One may think that a store of value and medium of exchange are separate functions but they both serve as a means to conduct indirect exchange. Storing value is for conducting later exchanges instead of immediate ones. In “A Treatise on Economics: Human Action,”¹⁶ Ludwig von Mises, a significant economist of the Austrian school of thought, argues that individuals store their value in a good carrying the least risk and can be liquidated easily and cheaply, as the uncertainty for the future drives the demand for money. A medium of exchange should therefore be a good store of value. 

One may think that the work or time to produce a salable form of money is arbitrary and wasteful. However, the unforgeable costliness — as we saw with proto-money — of such a good pays for itself multiple times over, as such a good makes exchange more efficient and beneficial in the long run. As Nick Szabo (Shelling Out) states, 

“…the unforgeably costly commodity repeatedly adds value by enabling beneficial wealth transfers. More of the cost is recouped every time a transaction is made possible or made less expensive. The cost, initially a complete waste, is amortized over many transactions. The monetary value of precious metals is based on this principle. It also applies to collectibles, which are more prized the rarer they are and the less forgeable this rarity is. It also applies where provably skilled or unique human labor is added to the product, as with art.”

Moreover, by holding the most salable good available in one’s time or location, one’s purchasing power appreciates over time as the cost and price in other goods, resources, and labor decrease. 

A medium of exchange must also achieve acceptability, allowing prices to be expressed in its terms and thereby becoming a unit of account. Suppose an economy does not have a recognizable medium of exchange. In that case, each good will have to be priced in terms of each other’s goods, leading to many prices and making economic calculations difficult. However, if an economy exists with a recognizable medium of exchange, all prices of all goods can be expressed in terms of the same unit of account. Menger argues, in his work, “The Principle of Economics,”¹⁷ that the measurement of price is derived from money and this “moneyness,” so to speak, is derived from a chosen medium of exchange.

The most salable — i.e, that which achieves the highest degree of salability across time, space, and scale — and accepted medium of exchange therefore becomes the best form of money. A universally more marketable medium of exchange is preferable to a less or non-universally marketable one, because, as Menger states in The Theory of Money and Credit, 

“…there would be an inevitable tendency for the less marketable of the series of goods used as media of exchange to be one by one rejected until a t last only a single commodity remained, which was universally employed as a medium of exchange; in a word, money.”

However, as we will see, money has only been able to provide, at best, two of these three forms

Silver’s Role in the History of Metallic Commodities as Mediums of Exchange 

Gold and silver initially rose as the metallic monies of choice primarily due to their high salability across time. The mechanism by which people increase gold’s supply is more restrictive than silver’s due to its higher natural scarcity and thereby has a higher stock-to-flow ratio than silver. Because of this, gold historically functioned as a store of value, primarily held by the wealthy and used as a medium for bigger purchases. On the other hand, silver was more divisible than gold, allowing smaller coins to be used for everyday transactions and trade.

Due to silver’s higher salability across scale, it functioned more like a medium of exchange and therefore more like money. For much of history, silver stole the show in developing the beginnings of finance, international trade, and the first global economic system. Moreover, silver was the main metallic commodity used for local, domestic, and foreign retail trades, as well as for payment of wages and salaries, as the smallest gold units had too large a value for such payments. Historian Andre Frank, in his work “Reorient,” noted that silver “went round the world and made the world go round.”¹⁸ Milton Friedman, a notable economist of the Chicago school of thought, also noted, “The major monetary metal in history is silver, not gold.”¹⁹

Examples of notable regions worth noting where significant silver trade models occurred were ancient Athens, Mesopotamia (especially in the land of Apum), the Ming and Qing dynasties of China, Japan, Peru, the city of Potosí in Bolivia, Spain, and the early Americas.

Mesopotamia had a dual-core monetary system of silver and grain recorded by clay tablet ledgers. The clay tablets were convertible to silver or grain with permissible systems of the state. The convertibility of the tablets functioned well within Mesopatimian cities; however, it was useless for international trade as other regions, such as Athens, had no use for these clay tablets. Therefore, to conduct trade, the Athenians mined silver for the creation of silver coins, known as the silver Drachmea and eventually functioned as a the dollar of the ancient mediterranean.²⁰ The Athenians stored the silver coins in the famous Parthenon on top of mount Acropolis and circulated the coins throughout the region by issuing temporary state jobs and implementing a tax system. From here, the Athenians were able to develop financial tools such as shipping loans and a proto-banking system.

Athenian Silver Tetradracm.

The land of Apum in Mesopotamia, in particular, served as an essential stop for silver trade, before, during and after the dominance of Assur merchants, where silver functioned as a medium of exchange between distant cities (even adversaries) to conduct trade. According to William N. Goetzmann, in his book “Money Changes Everything: How Finance Made Civilization Possible,”²¹ the Assur trade and its aftermath turned silver into money that connected Mesopotamia cities with the broader world.

Silver’s most significant imprint on the world, however, started in the Ming and Qing Dynasties of China. The Tang Dynasty implemented the precursor to paper money called Flying Cash or Feipiao. Traditional coins made from copper were too heavy and dangerous to transport to function as a commodity for backing the paper money. To resolve this issue, paper money was printed with pictures of the coins on them.²² Flying Cash, however, wasn’t intended to be a form of money; instead, they were certificates redeemable for a specified amount of metal cash.

The advent of real paper occurred during the Song Dynasty (960–1279) by a group of wealthy merchants and financiers in Szechuan as promissory notes. In 1375, The Ming Dynasty issued the first form of fiat money, Da Ming Baochao, or the The Great Ming Treasure Note as banknotes. At the same time, the Hongwu Emperor banned gold and silver as currencies. However, overprinting of the fiat money eventually led to hyperinflation and distrust of the paper money. Due to the failures of fiat, the Ming Dynasty returned to metal commodities.

A banknote issued during the reign of the Chinese Ming Dynasty.

By serving as a harder and more efficient money than copper, the desire for silver rose tremendously. In his essay, The Monetization of Silver in the Ming (1368–1644): China’s Links to the Global Economy, Wan Ming analyzed 427 contracts in land transactions of Huizhou from the early Ming periods till the age of Chenghua (1426–1487). The author revealed that the monetization of silver in the Ming was a grassroots, bottom-up process starting among common people before obtaining official approval in the ages of Chenghua and Hongzhi.²³

By the second half of the 16th century, China enforced all taxes to be paid in silver, which the state then used to pay for the costs of administering its empire. This desire for silver influenced other countries to increase mining productivity to trade for Chinese goods such as silks, porcelains, and teas.

Japan was the leading supplier of silver for the first half of the 16th century; however, most silver was mined in Spanish America. From the late 16th century, the exchange rate of gold to silver was between 1:5.5 to 1:7. At the same time, in Spain, the rate was 1:12 to 1:14.²⁴ Because silver was twice as valuable in China, other countries were incentivized to do what they could to increase Chinese trade. Throughout the 17th century, 150 tons of silver a year passed from the Americas to Europe and Asia. Moreover, 128 tons a year crossed the Pacific from Acapulco to the Spanish colony of Manila in the Philippines. According to Flynn and Giraldez, in their work, “Born with a Silver Spoon: The Origin of World Trade in 1571,” the founding of Manila for the production of silver marked the beginning of the first global trading system.²⁵

Silver Dollar of the Catholic Monarchs, after 1497.

A silver-rush from Spanish settlers also occurred within the city of Potosí, Peru due to significant silver deposits. The rush caused the city to go from an isolated region to the fourth largest Christian city in the world. Jack Weatherford, the author of The History of Money, called Potosi, the first city of capitalism, as it supplied the first ingredient to capitalism — money.²⁶

From this, the Spanish Peso (otherwise known as the Spanish Dollar), a silver coin known as the Pieces of Eight, functioned as the first world reserve currency. 

A Lack of Salability Across Space

Silver, however, had its faults. Transportation was cumbersome, slow, and expensive — thereby lacking salability across space. As Nick Szabo claims,²⁷ this was especially true for the British when transporting gold across a U-boat-infested Atlantic to Canada during World War I to support their gold standard. Moreover, metallic commodities in general became too costly to assay repeatedly for common transactions. Thus, a trusted third party (most often tax collectors) was needed to stamp a standard amount of the metal into a coin. 

As the coins fell into the hands of more third-parties, coins were quickly prone to counterfeiting, and debasement occurred as rulers reduced the metallic quality of coins to inflate their supply during times of war or other emergencies. Therefore, it also lacked a bulletproof restriction mechanism against monopolistic policy-making forces to maintain salability across space. 

The Gold Standard, Fractional Reserve Banking, and Fiat Money Origins

While silver helped create financial systems and global trade, gold won out in the end with the Western world’s gold standard. This likely occurred for two reasons. 

First, as argued by Barry Eichengreen in his book, “Globalizing Capital: A History of the International Monetary System,”²⁸ gold won over silver as a money standard by accident. In 1717, England’s Master of the Mint (otherwise known as Isaac Newton) set the official ratio of silver to gold too low. As a result, most silver coins went out of circulation, and gold gained dominance. Then, as the United Kingdom rose to power as the world’s empire, countries began trading exclusively in gold, weakening the silver standards of India and China. The demand for silver, therefore, dropped significantly.

Secondly, banking technology and paper notes improved gold’s divisibility and salability across scale, thereby matching silver’s previous upper hand on scale while maintaining a higher stock-to-flow ratio; gold’s score as salable money, therefore, took the lead over silver. This came to be the gold standard — the backing of paper currencies and financial communication systems with gold. 

Initially, under the gold standard, banks performed two functions: first, they provided depositing services such as safekeeping and clearing. In other words, they’d accept commodity money deposits and issue claims to the deposits, known as warehouse receipts or money substitutes. These receipts or substitutes were redeemable to depositors at par and on demand. Every claim to money was backed 100 percent by genuine money. 

Moreover, depositors didn’t receive interest on their deposits; instead, they paid a fee for bank depositing services (safekeeping and clearing). Secondly, banks served as intermediaries between investors and savers. Time share contracts were offered to savers, offering interest on loans to the bank and the banks, in turn, would reloan the same money to investors with the interest deferriential constituting the bank’s income. Within this system, an increase in the money supply did not occur. 

Fractional Reserve Banking and its Pitfalls 

Banks soon decided that 100% backed reserves wasn’t economical, and introduced a fractional reserve system of banking. Fractional reserve banking is a system whereby only a fraction of bank deposits are held for withdrawals. This provided an artificial access of reserves for bank lending; in return, investors could borrow more, the bank and its depositors received additional interest and savers could initiate instant withdrawals. 

However, while this may seem convenient, fractional reserve banking created three significant problems. First, a claim to ownership is given to more than one person for the same funds, violating one’s property rights. Secondly, multiple ownership of the same funds creates bank runs when multiple owners seek to claim their funds simultaneously. Deposit insurance has helped alleviate such scenarios; however, in dire times, a lender of last resort is needed, i.e., the Federal Reserve, to bail out the runs, causing an increase in the money supply. Third, artificially created reserves also increase the money supply as banks engage in circulation-credit expansion — issuing money through lending without the backing of actual savings — harming money’s salability across time. 

As I will discuss in part two of this series, these issues will likely arise again in Bitcoin’s future.

The Salable and Monopolistic Origins of Fiat  

Until the invention of the telegraph, transactions and settlements operated according to man’s physical limits — i.e., the speed of ships, foot, or horses. Once the banking system could settle exchanges as fast as the telecommunication system, rendering claims on metallic commodities became too slow, cumbersome, and expensive. To get around this problem, genuine money was eliminated, but its warehouse receipts remained — essentially creating a system based on gold defaults, known as the fiat system.

To achieve the fiat system, a monopolistic form — as opposed to a competitive form — of money was necessary. As explained by Hans-Hermann Hoppe in his article, “How is fiat money possible? — or, the devolution of money and credit,”²⁹ hyperinflation would immediately ensue if the creation of fiat was left to a competitive free entry market,

“…for under competitive conditions of free entry, if the (non-money) price paid for paper notes exceeded their production costs, the production of notes would immediately be expanded to the point at which the price of money approached its cost of production. The result would be hyperinflation.”

A single paper money producer is also capable of causing hyperinflation and a monetary breakdown. However, as it’s shielded from competition, the monopolist producer can restrict the production of notes to assure their purchasing power. 

As shown above (Schär and Berentsen), a monopoly issues the total money supply, and the market price of each money unit is determined by aggregate demand. Thus, a money unit can achieve a positive market value even while its production costs are zero.

On the other hand, the competitive money supply, such as gold and silver), can be increased by anyone; however, the more competitive money is discovered or created, the more difficult and cost-intensive the process of increasing its supply becomes (otherwise known as a difficulty adjustment). For every competitive money unit added to the supply, the marginal costs of production increase and the marginal revenue decreases, as an increase in supply leads to a decrease in the competitive money unit’s price. This is shown as (a) in the chart diagram below.

However, as shown in (b), consistently low marginal costs lead to larger amounts of the competitive money unit being produced or discovered. If the marginal costs are too low, an incentive to create more units will ensue until the money unit’s market price falls to zero. As explained above, this is the fate of fiat in competitive markets, as its productive costs are significantly small. Monopolization is required. Furthermore, monopolistic money is trust based money whereas competitive money attempts to be trustless — a significant theme discussed in part two. 

Nonetheless, the ability to increase transactional throughput by abstracting away the physical limits of metallic commodities through the implementation of monopolistic money (i.e., the fiat system) led to a more complex, diverse finance system. The new, faster world, therefore, embraced fiat for its salability across space since nothing like it had been seen before. Salability across space did not exist until the creation of fiat. 

The Philosophical Origins of Fiat: John Law and His Influence

Speed and salability across space weren’t the only factors in fiat’s adoption, as its philosophical origins stretch back to the early 1700s, as first developed by John Law. Law was a Scottish-French economist who founded and served as the head of one of France’s first national central banks in history, the Banque Générale Privée (later, the Banque Royale). As a monetary theorist, Law is considered the “ancestor of the idea of a managed currency.”³⁰ Moreover, Law’s tenets and propositions greatly influenced the Keynesians, monetarists, and supply-siders — the great expounders of fiat systems. While they differed in important areas of theory and policy, they all shared Law’s fundamental ideas about money.

In 1705, Law published a book, “Money and Trade Considered: With a Proposal for Supplying the Nation with Money,”³¹ theorizing an institution resembling a modern central bank issuing and managing paper fiat money through the purchasing and sales of securities and other assets on the open market. His monetary theory behind such an institution assumes two core tenets about money: (1) money is a tool to be molded and wielded by the government for policy making, and (2) money serves only as an exchange token or voucher for buying goods. Money has no value in and of itself; instead, as Law states, 

“Money is not the value for which goods are exchanged, but the value by which they are exchanged: The use of money is to buy goods and silver, while money is of no other use.”

From these two tenets, Law draws out three further propositions. First, since money is a voucher for goods, money should be spent and never hoarded, as it creates a deficiency of money in circulation and spending, causing a decrease in trade, real output, and employment levels. This first proposition greatly influenced Keynesian (and neo-Keynesian) philosophy. For Keynesians, the government should maintain a full employment level of aggregate demand, and they should do so via spending, as full employment cannot occur without a sufficient total outlay to meet its demand. In this sense, it is not the stock of money that matters; only the flow of money spending matters. The stock of money is crucial only if it influences the flow of spending.³² In other words, Keynesians are only concerned with one side of money’s stock-to-flow ratio.

Law’s second proposition is that money’s value should remain stable to ensure the buying and selling of goods are of equal value across time. Therefore, commodities — or competitive monies in general — cannot be money vouchers under Law’s scheme, as a commodity’s value naturally fluctuates according to changing market conditions. For the Keynesians, monetarists, and supply-siders, stabilizing money’s price level was also one of the most important goals of macroeconomic policy through the constancy of a selected statistical average or an index of prices.

Moreover, Law’s criticism of commodity monies (such as gold) extends to their high resource costs. This critique particularly influenced Milton Friedman and the Monetarist school to move from a gold standard to a fiat money system. Friedman — without understanding the role of unforgeable costliness — argues that the minting and mining of gold for a monetary standard is a social waste, as considerable resources are devoted to producing the commodity. Paper money, on the other hand, is essentially costless to produce.³³

Law’s third proposition is that the best route for establishing paper money, which can be inflated as much as necessary, is through banking institutions. This proposition expounds tenant one, which is the addition of inflation used as a tool for monetary policy, as currently utilized by the Federal Reserve System — i.e., creating additional bank reserves and deposits by purchasing Treasury securities from banks and the public.

The Philosophical Origins of Fiat: The Commodity and Credit Theory of Money

The origin and definition of money encompass two primary theories of thought with multiple subcamps: the commodity theory of money — as discussed — and the credit theory of money.³⁴ The former arises back to Ancient Greece from Aristotle’s Politics and was expanded in the Wealth of Nations by Adam Smith. 

Moreover, the commodity theory of money also argues that money as a salable good naturally arises without state involvement.

“Money is not an invention of the state. It is not the product of a legislative act. Even the sanction of political authority is not necessary for its existence. Certain commodities came to be money quite naturally, as the result of economic relationships that were independent of the power of the state.” (Menger, Principles of Economics)

The credit theory of money, on the other hand, argues that the value of money does not depend on any commodity; instead, money is simply a system of credit and debt — money originated as a system for accounting debts, and all monetary units represent these debts — not inherent value. In this view of money,

“We are all both buyers and sellers, so that we are all at the same time both debtors and creditors of each other, and by the wonderfully efficient machinery of the banks to which we sell our credits, and which thus become the clearing houses of commerce, the debts and credits of the whole community are centralized and set off against each other. In practice, therefore, any good credit will pay any debt.”³⁵

Moreover, according to this theory, money arises from the power of the state and the rule of law.

Georg Friedrich Knapp and Henry Dunning Macleod developed this theory in the second half of the 19th century, and Alfred Mitchell-Innes expanded on it in the early 1900s. It largely influenced the work of John Maynard Keynes and the Modern Monetary Theory (or MMT) by Abba Lerner, which have influenced the general policies and economic nature of the U.S. Federal Reserve.

Since the commodity theory of money emphasizes the need for a form of money that is salable against time, the restrictive mechanism for money creation is unforgeable costliness, which increases the difficulty and costliness of increasing a money’s supply. In the case of metallic commodities, silver and gold’s naturally fixed supply functions as the restrictive mechanism, and the process of increasing the supply is mining — the more one mines, the harder and more costly it is to mine. However, the credit theory of money emphasizes the need for debt creation and the paying off those debts. Their restrictive mechanism for money creation is lending, and since lending is encouraged, increasing the money supply is encouraged, too. Money under this theory, therefore, is not separate from credit. Money IS credit. 

The Downfall of Fiat: Economic Policy Fantasies and The Time Enemy 

As shown, fiat is a tool for economic policymaking, including 1) price stability, 2) increasing its flow according to aggregate demand, and 3) exists as an exchange voucher (without intrinsic value) for issuing or relinquishing debts through lending. Moreover, all three characteristics cannot exist without a monopolistic structured form of money. 

Two historical figures, Anne Robert Jacques Turgot and Friedrich Hayek, argue against price stability idealism, which has influenced the adoption of competitive monies (particularly Bitcoin and Kaspa). Turgot was an early advocate for economic liberalism of the 1700s and greatly influenced the creation of the Austrian school of economics. His argument against price stabilization schemes is two-fold. First, for money to be the most salable good, it’s value must vary in response to market conditions, 

“This value [of money] is susceptible of change, and in fact does change continually; so that the same quantity of metal which corresponded to a certain quantity of such or such a commodity ceases to correspond to it, and more or less money is needed to represent the same commodity…”³⁶

A countless number of different causes concur in fixing the value of competitive money at each moment and cause it to vary when compared either to the value of each particular commodity or the totality of the other values within commerce. In other words, salable money must be competitive; otherwise, a trusted third party can artificially and actively disrupt its value or supply (decreasing the purchasing power via inflation or causing unwanted effects from deflation).³⁷

Moreover, as Turgot argues (as his second point), a trusted third party isn’t needed. Price level fluctuations adjust the monetary unit’s purchasing power, avoiding excess supply or demand of the units. An increase in the demand for money is accommodated by a general fall in prices and an increase in purchasing power, thereby eliminating the need for an increase in the nominal supply of money. 

The Fugazi Scheme

Price stabilization not only eliminates the possibility of the most salable good, but it is also an economic fantasy, a fugazi if you will. A philosophical insight underpinning most of Hayek’s work is that perfect knowledge is unobtainable, stressing uncertainty and bounded rationality. His specific targets were two species of rationalism: central planning (the collectivism of socialist ideals) and the abstract individualism of homo economicus, a model assuming that man is perfectly rational (supported by orthodox economics).

These two species of rationalism fail to recognize life’s social and cultural complexities and, therefore, the spontaneous orders of economic markets. As Hayek argues in his article, “The Use of Knowledge in Society,”³⁸ Every individual has some advantage over others because they possess unique information of a particular experience, background, insight, perspective, and practice. In other words, they have knowledge of particular circumstances of time and place.

“We need to remember only how much we have to learn in any occupation after we have completed our theoretical training, how big a part of our working life we spend learning particular jobs, and how valuable an asset in all walks of life is knowledge of people, of local conditions, and of special circumstances.”

A single mind or a select conglomerate of single minds (in other words, central planning) is incapable of knowing all of these intricacies within the market. Statistical aggregates, too, cannot accurately account for the “universe of local knowledge” of the so called homo economics (if such a being even exists). 

“One reason why economists are increasingly apt to forget about the constant small changes which make up the whole economic picture is probably their growing preoccupation with statistical aggregates, which show a very much greater stability than the movements of the detail. The comparative stability of the aggregates cannot, however, be accounted for — as the statisticians occasionally seem to be inclined to do — by the “law of large numbers” or the mutual compensation of random changes. The number of elements with which we have to deal is not large enough for such accidental forces to produce stability.” 

Economic planning and the price stability of money based on statistical averages or the index of prices is, therefore, a fantasy. As we will see in part two, Hayek’s answer to the local knowledge problem is through decentralization, namely the decentralization of pricing systems.

The Time Enemy and Centralization

In 1912, J.P. Morgan testified before Congress, stating, “Gold is money. Everything else is credit.”

Given that fiat is credit— as its supply increases through lending — it cannot obtain salability across time because its purchasing power decreases to meet the demands of expanding debt. 

Credit-money also creates a a circular monetary system — a feedback loop whereby the inputs and outputs are liabilities. For example, under the U.S. fiat system, U.S. dollars are a liability of the U.S. Federal Reserve, consumer bank deposits of U.S. dollars are a liability of that particular commercial bank, and commercial bank reserves are, in turn, again, a liability of the Federal Reserve. Moreover, these reserves are backed up by Federal Reserve assets, primarily consisting of U.S. Treasury securities. These U.S. Treasuries are, too, a liability of the U.S. federal government, which is backed by taxes paid in liabilities (U.S. dollars). Within such a system, liabilities are liabilities of other liabilities ad infinitum.

Without the backing of a salable commodity to offset the credit, the system’s value is not only circular but empty. Moreover, the nature of these liabilities — without a mechanism in place to restrict the supply — will perpetually inflate to service the demand for debt, causing a feedback loop with compounding negative effects, leading to an inevitable death spiral or the peak of what some might call the Fourth Turning.

“Unlike a dollar, which is an asset to you but a liability of some other entity, you can hold gold which is an asset to you and a liability to nobody else.”³⁹

As we will see in part two of this series, separating credit from money via proof-of-work systems is a solution to credit-money problems.

Lastly, salability across space came with the price of centralization to meet the demands of fiat’s expansion. For example, William Stanley Jevons, an English economist and logician, illustrated in his book, “Money and the Mechanism of Exchange,” ⁴⁰ how the more efficient and faster banking systems became at netting and clearing imbalances, the more oversight was needed for banking systems to function.

Diagram 1) shows how multiple individuals could send money to one another using the bank as a settlement layer. Diagram 2) shows how multiple banks could send people’s money to one another. Diagram 3) introduces a central bank to maintain settlements between many banks, and Diagram 4) shows the base clearing house in London connecting all banks into one.

The Saga Continues…

This story will continue in part two, as I explain how proof-of-work emerged from Austrian economic philosophy (primarily Friedrich Hayek) and the development of cryptography and how proof-of-work continues the path of competitive, hard money (e.g., gold and silver).

Moreover, part two will argue how Kaspa is salable across space and scale — a feat unachievable by Bitcoin or any other proof-of-work asset. For now, I will show how Kaspa achieves salability across time. 

Kaspa’s Salability Across Time: Surpassing Bitcoin’s Stock-to-flow Ratio

Kaspa will eventually obtain the highest stock-to-flow ratio in history — higher than Bitcoin’s — and thus become the most salable form of money across time or, in other words, the hardest form of money. This is shown by simple stock-to-flow ratio modeling in the sections below. Pricing prediction models have also been constructed from such modeling, namely Plan B’s stock-to-flow pricing model and the Power Law model.

It’s important to cover these pricing models — not for predicting future prices, but to understand the relevance of positive techno-economic feedback loops.

Kaspa’s Stock-to-flow Ratio Mapped out 

Computing the present and future stock-to-flow ratio of Kaspa requires on-chain data from the the asset’s stock and flow: 

‘Stock’ refers to the supply of Kaspa at a given time. We take this from the ‘Total Mined’ column in the Official Kaspa Emission Schedule.

‘Flow’ refers to the annual production rate of Kaspa. We compute this from the ‘Total per Month’ and ‘Date’ columns in the Official Kaspa Emission Schedule.

The emission schedule was used to compute Kaspa’s stock-to-flow ratio as its on-chain emission data aligns well with it. From this data, the following is mapped out the following. 

As we can see, Kaspa’s current stock-to-flow ratio score is roughly 9–10. However, Kaspa’s emissions halve each year, with the block reward reduced by a factor of (1/2)^(1/12) each month; therefore, the stock-to-flow ratio will rise exponentially. 

Comparing the Stock-to-flow Ratio of BTC and KAS

Bitcoin is supposed to make one block every 10 minutes. But the actual block time oscillates, as you can see in this chart. We can see that the daily blocks produced varied much before 2015, and after 2015, they became more stable. Therefore, we created an adjusted Bitcoin supply schedule. 

To smooth the oscillation, we take the average block time of every reward era (210,000 blocks). For reward era five and onward, we estimate the block time with the average block time in reward era four. The estimated block era time is marked in gray below.

Based on this adjusted schedule, we can graph the Bitcoin supply:

Using the same approach described above, we can compute the predicted S2F ratio for Bitcoin and Kaspa. Both are computed using the full circulating supply without removing potential lost coins.

Out with the Old, in with the New

Digital commodities will and have surpassed their metallic predecessors, likewise. Historically, gold miners add roughly 1.5% of new gold annually to its existing above-ground supply. According to the World Gold Council, the total gold ever mined amounts to about 213,000 tons, and the annual production in 2023 was just over 3,650 tons (1.71% — 0.21% above the historical average).⁴¹ Dividing the two amounts gives a stock-to-flow ratio of 58.4. This means the current annual production must be maintained longer than 58 years to double the current gold stock.

Bitcoin’s stock-to-flow ratio went from 28 (just under silver’s) to 56 (just under gold’s) after Bitcoin’s halving in May of 2020. However, after the most recent halving, Bitcoin’s stock-to-flow ratio jumped to 120 (real estate just under 100, according to PlanB). Bitcoin is now the hardest money on earth. However, this will soon change.

Kaspa is digital silver — allowing proof-of-work money to maintain high salability across space and scale, a feat unatable by Bitcoin. The Hebrew noun כֶּסֶף (kesef, pronounced KESS-eff) is the Biblical Hebrew word for both “silver” and “money.” The relationship between the two words is easy to understand, as one of the earliest forms of “money” was weighed bags of silver. A version of the word Kesef in Old Testament scriptures can be read as “Kaspa.”

Kaspa functions like a superior form of ancient silver; however, its logo design was inspired by the AE Half Folis depicting Anastasius of Constantinople from 498–518, Post-Reform Copper Coinage.

As digital silver, one may think that KAS will maintain a lower stock-to-flow ratio (and lower scalability across time) than BTC, digital gold, as this has historically been the case with real metallic silver vs. gold. However, as shown in the graph above (Bitcoin v.s. Kaspa S2F), KAS will eventually surpass BTC’s stock-to-flow ratio leading up to 2030, with a ratio close to 400. KAS’ stock-to-flow ratio takes off exponentially (e.g., a ratio close to 10,000 in 2034) compared to BTC’s after this point of convergence, creating the hardest money (or the most salable form of money across time) the world may ever witness.

Plan B’s Price Prediction Model: A Correlation Between Market Value and the Stock-to-flow Ratio

Plan B introduced a price prediction model for Bitcoin in their 2019 article, “Modeling Bitcoin Value with Scarcity,”⁴² by assuming a correlation between Bitcoin’s market capitalization and stock-to-flow ratio. From this assumption, Plan B calculated the following:

• Between Market Value (the) and S2F ratio of Bitcoin, there’s a linear relationship between ln(S2F ratio) and ln(market value), with a statistically significant 95% R².

• R² (R-squared) shows how well the independent variable (x) explains the variation of the dependent variable (y). If R² is 100%, then y’s variation can be 100% explained by x, and 0% deviation exists. This means the (x, y) dots are all strictly on the regression line.⁴³ 

Reference: See content around the ‘Why Bitcoin has Value: Scarcity’ graph in this blog post by Plan B

We are constructing the same linear relationship for Kaspa. Based on monthly data points starting in 2022, our model is statistically significant at 96.11%.

Here’s How it’s Done

1. First, we plot the monthly S2F ratio against the market value of the same time, on the log scale.

2. Then, we fit a linear regression model to the data. 

The data points and regression line are both shown below; 

Derive the Pricing Model

Based on the linear model we derived we can derive an equation to compute the estimated market value (i.e. market cap).

Now that we have both the estimated Market Value of Kaspa and the estimated supply of Kaspa at any given time, we can derive the estimated price of Kaspa at any given time, i.e. the price model, whereby price = the market value divided by Kaspa’s supply.

Now let’s zoom in to 2022–2024, and compare the model price with Kaspa’s actual market price: 

We created an additional divergence chart in addition to the main stock-to-flow chart. It shows the difference between price and stock-to-flow.

When the price moves above the stock-to-flow level, the divergence line turns green to red. On the other hand, when the price falls (i.e., at 0) below the stock-to-flow line, the divergence line turns red to green. This allows us to see how the price interacts with the stock-to-flow ratio through market cycles over time. This divergence line is also referred to as the ‘Stock-to-flow Deflection.’⁴⁴

As we can see, the model and actual prices closely follow one another, with minor divergence events primarily occurring in mid-to-late 2022 and mid-2023.

The Inevitable Downfall of the Stock-to-flow Price Prediction Model

While stock-to-flow models are extremely accurate in telling the hardness of an asset (or its salability across time), using a stock-to-flow model as a price prediction model is trivial and unrealistic. Currently, global financial assets represent roughly ~ $1000 trillion,⁴⁵, with Bitcoin’s market capitalization representing 0.085% and gold’s representing 1.37%. Gold’s Stock-to-flow ratio is ~60 every year, as gold’s market stock and annual production flow are quite stable. Meanwhile, the stock-to-flow ratio of Kaspa and Bitcoin grows exponentially every year. For example, in 2071, Bitcoin’s stock-to-flow ratio will equal nearly half a million. Therefore, if this model holds, Bitcoin’s market capitalization will greatly exceed all global financial assets.

Not only is this highly improbable but as we will see, correlating an asset’s market value to its stock-to-flow ratio is somewhat irrelevant as the flow reduction occurs on a single block. In contrast, all other data flow points do not correlate with the price between the halvings. Given that the flow is reduced every four years by a factor of two (at least in the case of Bitcoin), its general time directionality is trivial. As supply and price grow in time, the price correlation of the stock-to-flow price prediction model is likely coincidental.

Moreover, and more importantly, the stock-to-flow price prediction model cannot maintain a constant, positive feedback loop, which will likely cause it to collapse.

The Power Law and its Relation to Bitcoin and Kaspa

A power law is a relationship whereby a relative change in one quantity gives rise to a proportional relative change in another, independent of the initial size of each other. For example, if the length of a square region is doubled, the area is multiplied by a factor of four. Similarly, if the length of a side of a cube is doubled, the cube’s volume is multiplied by a factor of eight. These are both power-law relationships, whereby the factors don’t depend on the size of the square or cube. Power law dimensions can be positive, negative, or fractional, whereby fractional dimensions give rise to the concept of fractals.

A power law can function as a linear relationship if its variables are plotted on logarithmic axes. Plotting two quantities against each other in such a way determines if the quantities have a power law relationship and can. A power law can function as a linear relationship if its variables are plotted on logarithmic axes. The input values, x, are plotted on the horizontal axis to output values, y, on the vertical axis, whereby the form y=xᵏ equals y=x²=x·x, with k as the power constant; for example, if x=10, y=¹⁰²=10·10=100.⁴⁶ Discovering power law relations, as we will see with Bitcoin and Kaspa feedback loops, helps reveal an underlying regularity in the properties of systems.

Trolololo, a Bitcoin Forum member, was the first to notice a power law relationship with Bitcoin’s price. However, Giovanni Santostasi⁴⁷ and Harold Christopher Burger⁴⁸ further studied and popularized the idea. Plan B’s stock-to-flow price prediction model’s x-axis represents the stock-to-flow value, and its y-axis represents the market capitalization; on the other hand, the Power Law’s x-axis represents time, and its y-axis represents the asset’s price.

According to on-chain price data, KAS has followed a power law relationship for roughly two years. No other digital asset besides Bitcoin has followed a power law relationship until KAS.

If KAS continues to follow this model, its price should trend in the following manner. The Power Law price prediction is much more realistic than the stock-to-flow price prediction model. For example, on January 1, 2028, one KAS will equal ~5 USD according to the Power Law; in contrast, one KAS will equal ~1,000 USD according to the S2F price prediction model on the same date.

However, as noted, the price prediction itself is not important; instead, what the price prediction entails is important: a positive techno-economic feedback loop — i.e., when a correlation between an asset’s price and time forms a power law relationship, a positive techno-economic feedback loop occurs.

Positive Techno-Economic Feedback Loops

A positive feedback loop is a self-perpetuating process whereby a change in a given direction causes an additional change in the same direction without continuous external adjustment. Adjustments are internal and self-adaptive. Positive feedback loops, therefore, function as living networks. 

Positive techno-economic feedback loops currently only exist within Bitcoin’s and Kaspa’s proof-of-work models, whereby the increase in price increases adoption, the increase in adoption increases mining profitability (afford more mining resources), the increase in mining profitability increases the hash power, the increase in hash power increases security, the increase in security increases demand, and the increase in demand increases the price. One may think increased security doesn’t impact the asset’s demand or price; however, nobody would buy into a system if it wasn’t secure — its increased security provides a stronger store of value.

Moreover, these loops self-adjust according to a difficulty adjustment, whereby the hash rate necessary to mine a block is changed iteratively. The difficulty adjustment ensures the loop’s direction doesn’t increase or decrease too significantly, allowing bubbles to reach equilibrium. 

Because bubbles are tamed within these loops, they provide healthy moments of adoption and innovation, unlike boom and busts within fiat systems. In other words, fiat’s feedback loop compounds negative effects, whereas techno-economic feedback loops compound positive effects. 

Kaspa’s Techno-Economics

Giovanni Santostasi discovered that Bitcoin doesn’t have just one primary power law but many second-order power laws. The same is beginning to happen for Kaspa. In addition to its primary power law of price vs. time, we’ve calculated the second-order power laws for Kaspa’s balance vs. time, hash rate vs. price, price vs. addresses, hash rate vs. time, and addresses vs. hash rate. Three of the six power laws maintained a high percent fit (how well an asset continually follows a power law).

The percent fit is otherwise known as R² of a power law. 

R² is the slope of the graph from a log-log scale perspective. On a log-log scale, each unit increment resembles ⁰¹, ⁰², ⁰³ instead of 1, 2, 3. For example, if n=3 (i.e., a power of 3) and the x-axis moves 1 unit, the y-axis will move three units. Thus, when x moves from 1 to 10 ( or ¹⁰¹ to ¹⁰² ), y’s value increased ¹⁰³ = 1000 times; an increase for x of 10 times makes y increase ¹⁰³. We can visualize this, again, with the relationship between the length of a cube versus the volume of a cube. When the length of a cube is 1, the volume is 1. When the length is 10, the volume is ¹⁰³ = 1000.

The percent fit (or R²) for all six of Kaspa’s power laws — primary and second-order — is the following (and illustrated in the charts below):

Kaspa’s Primary Power Law: price vs. time: R²= 0.9469228315952243.

Kaspa’s Second-order Laws: balance vs. time: R² = 0.35985609928116186, hash rate vs. price: R² = 0.9068366917456203, price vs. Addresses: R²= 0.4166311372069602, hash rate vs. time: R² = 0.9474251912159734, and addresses vs. hash rate: R² = 0.5250004207949247.⁴⁹

It’s important to note that Kaspa’s primary power law (price vs. time) has a higher percent fit (R²) than Bitcoin’s; i.e., Kaspa continuously matches the primary power law at a greater rate than Bitcoin. Bitcoin’s percent fit (R²) = 0.92101, whereas Kaspa’s percent fit (R²) = 0.94692, which is only within two years, compared to Bitcoin’s fifteen years of existence. Therefore, the R² of Kaspa’s other second-order power laws could also increase.

Moreover, Kaspa’s positive techno-economic feedback loop is more regenerative than Bitcoin as bubbles occur without the impact of significant supply shock events (i.e., Bitcoin’s four-year halving event). Kaspa’s supply halves annually without a major single event as mining rewards gradually reduce monthly — it’s subtle. Therefore, bubbles are more organically driven by adoption (the slope of the lower trend line) and market forces. This makes KAS more responsive to market conditions, functioning as a better form of competitive money. 

References and Footnotes

[1] Lowery, Jason. Softwar: A Novel Theory on Power Projection and the National Strategic Significance of Bitcoin. 2023.

[2] Szabo, Nick. “Wet Code and Dry.” Unenumerated, 24 Aug. 2008, unenumerated.blogspot.com/2006/11/wet-code-and-dry.html.

[3] Sowell, Thomas. A Conflict of Visions: Ideological Origins of Political Struggles. 2007.

[4] Pack, Justin. Money and Thoughtlessness: A Genealogy and Defense of the Traditional Suspicions of Money and Merchants, Palgrave Macmillan, pp. 51–70.

[5] William Goetzmann, Money Changes Everything: How Finance Made Civilization Possible, pp. 15–25.

[6] LLFOURN. “A Brief History of Ledgers.” Medium, 14 Feb. 2018, medium.com/unraveling-the-ouroboros/a-brief-history-of-ledgers-b6ab84a7ff41#:~:text=Over%205%2C000%20years%20ago%2C%20the,indicating%20the%20quantity%20of%20it.

[7] Szabo, Nick. “Shelling Out: The Origins of Money.” Satoshi Nakamoto Institute, 2002, nakamotoinstitute.org/library/shelling-out.

[8] Ammous, Saifedean. “Chapter 1: Money.” The Bitcoin Standard: The Decentralized Alternative to Central Banking, Wiley, 2018, pp. 2–3.

[9] Gillilland, Cora Lee C. (1975). The Stone Money of Yap. A Numismatic Survey. (Smithsonian Studies in History and Technology 23). Washington, DC: Smithsonian Institution Press. p. 75.

[10] Alden, Lyn. “Chapter 2: The Evolution of Commodities as Money.” Broken Money: Why Our Financial System Is Failing Us and How We Can Make It Better, Timestamp Press, 2023, pp. 23–26.

[11] Mises, Ludwig Von. “Function of Money: Origin of Money.” The Theory of Money and Credit, Ludwig von Mises Institute, Auburn, Alabama, pp. 32–33, https://cdn.mises.org/Theory%20of%20Money%20and%20Credit.pdf.

[12] Schär, Fabian, and Aleksander Berentsen. “The Context of Monetary Theory.” Bitcoin, Blockchain, and Cryptoassets: A Comprehensive Introduction, The MIT Press, Cambridge, Massachusetts, 2020, pp. 6–7.

[13] Menger, Carl. The Origins of Money, cdn.mises.org/On%20the%20Origins%20of%20Money_5.pdf 

[14] Rothbard, Murray N. What Has Government Done to Our Money? . Ludwig von Mises Institute, https://cdn.mises.org/What%20Has%20Government%20Done%20to%20Our%20Money_3.pdf.

Originally published in 1963.

[15] The following diagram illustrates the dimensions every form of money achieves. As shown, Kaspa is the first and only form of money to achieve all three dimensions of money. Therefore, solving the Money Trilemma — Bitcoin, on the other hand, only achieves the same dimensions as silver and the gold standard. Ethereum isn’t shown below because, as I will argue in part three, it cannot be money.

[16] Mises, Ludwig Von. Human Action: A Treatise on Economics. Ludwig von Mises Institute, https://cdn.mises.org/Human%20Action_3.pdf

[17] Menger, Carl. Principles of Economics. Ludwig von Mises Institute, https://cdn.mises.org/principles_of_economics.pdf.

[18] Frank, Andre Gunder. Reorient: Global Economy in the Asian Age. University of California Press, 1998.

[19] Milton Friedman in an interview with James Blanchard at the New Orleans Investment Conference. November 7, 1993

[20] “The Monetary Economics of Ancient Athens.” Money and Macro, 30 Dec. 2020, www.moneymacro.rocks/2020-12-30-ancient-athens-finance/. 

[21] Goetzmann , William N. “Financial Architecture, Digging an Ancient City.” Money Changes Everything: How Finance Made Civilization Possible, Princeton University Press, Princeton, New Jersey, 2017, pp. 62–63.

[22] Weatherford, Jack (1997). The History of Money. Crown Business. pp. 125–26.

[23] Ming, Wan. “The Monetization of Silver in the Ming (1368–1644): China’s Links to the Global Economy.” Grazer Philosophische Studien, 5 July 2005.

[24] “2.6: Silver and the Ming Dynasty.” Modern World History: New Perspectives , LibreTexts, 2023, https://human.libretexts.org/Workbench/Modern_World_History%3A_New_Perspectives. 

[25] Weatherford, Jack. “Silver and Money Capitalism.” Indian Givers: How the Indians of the Americas Transformed the World, Ballantine Books, 1989, pp. 20–20.

It’s important to note that this came about from great hardship on the native people of Potosi, including slavery to upkeep mining production.

[26] Flynn, Dennis O., and Arturo Giráldez. “Born with a ‘Silver Spoon’: The Origin of World Trade in 1571.” Journal of World History, Volume 6, no. №2, 1995, https://www.jstor.org/stable/20078638. 

[27] Szabo, Nick. “Bit Gold.” Satoshi Nakamoto Institute, 29 Dec. 2005, nakamotoinstitute.org/library/bit-gold/. 

[28] Eichengreen, Barry. Globalizing Capital: A History of the International Monetary System. Princeton University Press, 2019.

[29] Hoppe, Hans-Hermann. “How is Fiat Money Possible? -or, The Devolution of Money and Credit.” The Review of Austrian Economics, vol. 7, no. 2, 1994, pp. 54–55, https://cdn.mises.org/rae7_2_3_3.pdf. 

[30] Joseph A. Schumpeter, History of Economic Analysis (New York: Oxford University Press, 1954), p. 321.

[31] Law, John. Money and Trade Considered With a Proposal for Supplying the Nation with Money. 1705, https://avalon.law.yale.edu/18th_century/mon.asp.

[32] Abba Lerner, a disciple of Keynes, 

“The level of employment depends on the flow of acts of payment involved in the spending, not on the stock or amount of money in existence…The only thing that matters is the flow of money spending. The stock of money can be of significance only to the degree that it may influence the flow of spending…”

Abba P. Lerner, Economics of Employment (New York: McGraw-Hill Book Company, Inc., 1951), pp. 51, 53.

[33] Friedman, Milton. Essays in Positive Economics. University of Chicago Press, 1966.

[34] Lyn Alden developed a third theory of money, in her book, “Broken Money: Why Our Financial System is Failing Us and How We Can Make it Better,” called the ledger theory of money. According to Lyn, money functions as a ledger from ancient Mesopotamia clay ledgers to Bitcoin. Commodities, such as a gold and silver, are nature-based ledgers 

[35] Mitchell-Innes, Alfred. “The Credit Theory of Money.” The Banking Law Journal, Volume 31, 1914, https://cooperative-individualism.org/innes-a-mitchell_credit-theory-of-money-1914-dec-jan.pdf.

[36] A.R.J. Turgot, Reflections on the Formation and the Distribution of Riches (New York: Augustus M. Kelley, [1770] 1971), p. 40–41.

[37] It’s important to note the risks associated with trusted third party systems as argued by Nick Szabo in his article, “Trusted Third Parties are Security Holes.” This will be discussed further in part two of the article series. 

[38] Friedrich A. Hayek (1945). “The Use of Knowledge in Society”. American Economic Review. XXXV: 4. pp. 519–530, https://www.kysq.org/docs/Hayek_45.pdf.

[39] Alden, Lyn. “What Is Money, Anyway?” Lyn Alden — Investment Strategy, www.lynalden.com/what-is-money/. 

[40] Jevons, William Stanley. “Chapter XIX: Credit Documents .” Money and the Mechanism of Exchange, D. Appleton and Company, 1896, pp. 251–262, https://mises-media.s3.amazonaws.com/Money%20and%20the%20Mechanism%20of%20Exchange_2.pdf.

[41] “Above-Ground Stock.” World Gold Council , 1 Feb. 2024, www.gold.org/goldhub/data/how-much-gold.

[42] B, Plan. “Modeling Bitcoin Value with Scarcity.” Medium, 22 Mar. 2019, medium.com/@100trillionUSD/modeling-bitcoins-value-with-scarcity-91fa0fc03e25.

[43] Sharma, Nitinkumar. “The Power of R-Squared: Assessing Regression Model Strength.” Medium, 22 Oct. 2023, medium.com/@nitin.data1997/the-power-of-r-squared-assessing-regression-model-strength-443aa3c3be93.

[44] “Bitcoin: Stock-to-Flow Model.” Look into Bitcoin, 2024, www.lookintobitcoin.com/charts/stock-to-flow-model/.

[45] Woetzel, Lola, et al. “The Rise and Rise of the Global Balance Sheet: How Productively Are We Using Our Wealth?” McKinsey and Company, 15 Nov. 2021, www.mckinsey.com/industries/financial-services/our-insights/the-rise-and-rise-of-the-global-balance-sheet-how-productively-are-we-using-our-wealth. 

[46] For a more detailed explanation of the power law’s relationship Bitcoin and Kaspa, see the following article: 

Chancellor. “Bitcoin & Kaspa: Not Your Regular Crypto.” Medium, 9 Feb. 2024, medium.com/@chancelloronbrinkofbailout/bitcoin-kaspa-dacc84b6d65d. 

[47] Santostasi, Giovanni. “The Bitcoin Power Law Theory.” Medium, 10 Jan. 2024, giovannisantostasi.medium.com/the-bitcoin-power-law-theory-962dfaf99ee9. 

[48] Burger, Harold Christopher. “Bitcoin’s Natural Long-Term Power-Law Corridor of Growth.” Medium, 4 Sept. 2019, medium.com/quantodian-publications/bitcoins-natural-long-term-power-law-corridor-of-growth-649d0e9b3c94.

[49] The following charts were calculated by Giovanni Santostasi for BTC’s 15 year life-span. As noted, the BTC’s secondary power laws have a high R²; however, Kaspa follows the primary power law more closely. 

More information on BTC’s secondary power laws are found in Santostasi’s article, “The Bitcoin Power Law Theory.”