The primary function of banks is centered around issuing credit and generating debt. For cryptocurrencies to replicate this function would require improved authentication protocols: Chip implants anyone?

...It also forced all people, great and small, rich and poor, free and slave, to receive a mark on their right hands or on their foreheads, so that they could not buy or sell unless they had the mark, which is the name of the beast or the number of its name... That number is 666.

— Revelation 13:16-18

Credit, debt, and taxes

Cryptocurrencies have a long way to go before they are fully capable of replacing banks. Currently the primary obstacle is the inability of crypto to issue credit, where credit is simply the reciprocal of debt, i.e. debtors are liable to creditors.

Major activity of banks is centered around issuing credit and generating debt — in fact, this is their primary function. Without getting into the details of fraction-reserve banking, basically commercial banks are allowed to create money, in the form of credit (interest bearing loans), in quantities many times larger (leverage) than the reserves of a nation's government. What are these reserves I speak of? Well they're essentially credit issued by a government's central bank. And of course, this credit is no longer backed by anything as tangible as good ol' fashioned gold, but by the government's ability to extract taxes from its populace. Of course taxes are just a nice way of saying, "the government demands >40% of all income (i.e. production or economic value) generated by its poorest citizens and <15% generated by its wealthiest, or else they lock you away."


Ok, so let's remove the fancy language to get a clearer understanding of the modern financial structure: banks create leveraged credit, backed by other banks leveraged credit, backed by government credit, backed by government extortion of its citizens. Extortion: "the practice of obtaining something, especially money, through force or threats." Yup, that's taxation alright. Of course, to them it's credit; to us it's debt. And the picture gets much worse, at least for us, the debtor: standard interest rates and calculation practices (namely the accepted practice of applying the bulk of repayment first to the accrued interest, with only the remainder going to the loan balance) ensure repayment amounts are at least double the original debt. For most loans, if the minimum monthly payments are made, the final repayment amount is many multiples of the original debt.

Removing the middlemen, it's readily apparent that when you and I go into a bank to get money, what we're really doing is asking for the privilege of becoming the bearer of a debt that must be repaid many times over, under pain of imprisonment. Bleak. Nonetheless, most citizens in the developed world are able to be productive enough to at least make the minimum monthly payments, while still maintaining a moderately comfortable standard of living. And so we simply make our minimum monthly payments, we bow to the taxman's demands, we stay out of prison, we maintain the status quo, we do our best to enjoy what freedoms are allowed, we don't ask questions. Fine. After all, it could be much worse for us: we could have been born in a country currently on the receiving end of our governments' daily bombings or subject to a tortuous dictator (if you are such an unfortunate one, my heart truly goes out to you).

Regardless, some form of credit and debt structure is necessary for human civilization. Even hunter/gatherer societies relied on such informal credit/debt structures as, "you share your kill with me today, and I'll share mine with you tomorrow." Probably modern standards of interest collection, rent seeking, and taxation are much more extractive than necessary; but certainly, human society requires the ability to borrow and lend.

Crypto credit

Can cryptocurrencies facilitate borrowing and lending? Theoretically, yes; presently, no. A fundamental requirement of a borrower-lender relationship is that the debtor be accountable to the creditor. Any creditor that does not sufficiently secure his loans will not be in business long. In order to secure a loan, the debtor must remain known and accountable to the creditor until the debt is repaid in full. Credit cannot be issued anonymously, for obvious reasons. Hence, before credit-debt transactions are possible in the crypto-space, strong and reliable identity authentication must first be possible.

Bitcoin is exceedingly unlikely to ever be singly capable of facilitating creditor/debtor relationships, because it is so deeply rooted in the cypherpunk ideals of privacy and anonymity. Despite Bitcoin protocol's presently weak implementation of privacy and anonymity features, there are a plenitude of solutions in active development and adoption, such as the Lightning Network, CoinJoins, mixers, etc. Thus, in all likelihood, a separate Debtcoin or Debt-layer will have to be developed before the crypto-space is capable of replicating the existing financial institutions' borrowing/lending services.

Did he just say Debtcoin?! Heresy! Burn him alive! Yes, perhaps a Debtcoin runs too contrary to the existing crypto-ideals; but, you can bet it will be tried, once the requisite authentication solutions are available — if not by a decentralized community, then by one or other central authority or institution.

Authentication is of course already readily available in the form of cryptographic signatures, however, this alone is not enough to build reliable creditor-debtor relationships atop. Existing cryptographic signatures simply allow transacting parties to prove they own the private keys that originated their respective public keys but do not allow for more complicated authentications. For example, would be borrowers must be able to prove their personal identities, good-standing credit histories, asset possessions, etc. to potential creditors in order to minimize creditor risk. More complex crypto-infrastructure must be developed to allow for such authentications.

Chip implants

What form might such identity authentications take? The strongest conceivable identity authentication solution would absolutely bind a single financial account to a single user. Not only should such strong authentication be imbued with a user's biometrics data, but in order to eliminate the possibility of duplication, should be inseparable from a user's physical body.

A readily realizable solution would be the embedding of a radio-frequency identification (RFID) chip, also capable of functioning as a hardware wallet, into a user's body. With the trivial addition of RFID, existing hardware wallets, such as the OpenDime, would be more than adequate to provide a first-generation, authenticated wallet. And with added security layers, such as incorporation of biometric signatures, a near-perfect personally authenticated account could be achieved. For example, the wallet could be designed to only function when embedded within living cells of a particular DNA, which would eliminate the possibility of chip removal from a user's body — voluntarily or otherwise.

Because your private keys could never leave your person, you'd never again lose or forget your wallet and you'd never again worry about theft of your funds or identity. You'd be able to absolutely prove your personal credit history to lenders, so they could have confidence in the security of their loans.

The mark and number

Of course the power of every new technology can be applied for both constructive and destructive purposes. Some fear technology that enables such absolute identity authentication has the potential to be used for oppressive purposes. Certainly, such a technology has the potential to be applied to the absolute control of all users financial activity, if applied under the rule of an omnipotent authority structure. For example at present, by using cash and identity proxies, anonymous, private, 'criminal' transactions, and tax evasion are still possible, under the noses of even the most controlling governments.

An implanted hardware wallet with strong personal identity authentication, under the control of a ubiquitous central authority, would be more than capable of all but eliminating the possibility of any transactions undesirable to the state, including tax evasion. Don't pay the tax man what he demands and he'll simply render your implanted wallet unusable. Don't vote for the right party and maybe your credit rating will take a hit? Don't follow the right religion and perhaps you'll find yourself excluded from certain economic privileges? Labeled a terrorist of the state and you're all but done; the next RFID scanner you happen by will report your location to the state police.


The above is more than misguided conspiracy theory, as there is ever more pressure being exerted by governments the world over to eliminate cash and to implement digital currency universally. But as always, the evolution of technology itself appears inevitable, and the devil is in the details of its implementation. Will the state succeed in gaining absolute control over the entire economic sphere? Or can the guiding principles of the early cypherpunk movement hold sway over its brainchild cryptocurrency, which promises an alternative to the state-sponsored economic system? If so, is decentralized governance (<50% attack resistant) of such a network of implanted wallet chips enough to ensure the safety of its users, or are additional security measures required?

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@landonmutch — traveling, trailer-dwelling, software developer, writer, geologist, autodidact, traditional hacker, subversive, Bitcoin maximalist, contributor to Lightning Network protocol.

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