Read on...
Using gold as an example of this term, he traces the layers of this ancient currency from raw mined material to gold coins, and finally to bank-issued gold certificates.
In a groundbreaking manner, Bhatia offers a similar paradigm for the evolution of digital currencies. Bhatia's analysis begins in Renaissance Florence with the gold Florin coin and a burgeoning banking culture, continues with the evolution of central banking, and concludes with a vision for the future of our international monetary system.
As central banks around the world prepare to launch their own crypto-competitors, Bhatia illustrates how the invention of Bitcoin created a seismic shift in money and merged the monetary and cryptography sciences.
His unique analysis of "layered money" illuminates money markets for the general reader and shows how Bitcoin is becoming a trusted global currency. Readers will come away with an understanding of the mechanics of our financial system, why the dollar is deeply entrenched despite its state of disrepair, and how Central Bank Digital Currencies (CBDCs) and cryptocurrencies will interact in our new monetary future.
These are the examples that stuck with me.
These learnings are worded and appended in a way that makes it easier for most of us to understand and absorb.
If you are interested in reading about such learning from other all-time best-selling books, you may click here.
For now, if you wish to know about "Layered Money", and what I learned from it, here you go...
1/ When the confidence is running high, money keeps expanding as cash or certificates are the preferred mode of payment. When confidence runs low, it results in contractions. In such a case, everyone wants to convert cash to gold (and there isn't enough gold to back up the cash in circulation). This leads to what is called as bank runs and ultimately financial crisis.
2/ Promissory notes were bearer notes like the currency we use today. Prior to that, all paper money has a bearer name on it - just like the cheques.
3/ Bank deposits federal insurance insured only deposits up to a few lacs, but its impact was more psychological. It gave some confidence to the people holding lower layered Money that their money won't suddenly disappear. Money is all about trust and confidence.
4/ Gold is still held today by most countries as the first layer, counter party risk free money.
5/ The US Treasury Bonds are considered as the baseline risk free instruments in academia. Purchase of treasuries is how fed creates second layer money into the system.
6/ New treasury Bonds can vary from a few days to as much as 30 years. The lower duration treasuries are relatively more risk free and are also called as T Bills. Interest rate on T bills is thus one of the most cited interest rates in the money market.
7/ Money market funds became very popular since they provided an uncomplicated way to hold T Bills and other longer duration treasuries as units. All surplus cash could be safely moved to such funds.
8/ The USD is still the most dominant currency because the alternative currencies lack cohesiveness. It is still the most undisputed reserve currency. Half of world's invoices are denominated in USD even through the US economy is only 15% of the global economy.
9/ In realms of monetary science, Bitcoin is an alien invader. It doesn't resemble anything that came before it because it relies heavily on the technological innovations of the past half century
10/ Bitcoin is the new first layer money, a crown so far held by Gold
11/ Email is a protocol (SMTP) to send and receive data. Bitcoin is a protocol to send and receive value.
12/ A block is initially a set of unsettled transactions on the Bitcoin network that people are trying to complete. Transactions get confirmed once the block is mined.
13/ Bitcoin mining can be successfully done only by miners that have immense computational power to solve the mathematical puzzles. This power also demonstrates the proof of work and also secures the Bitcoin network
14/ First layer Bitcoin transactions are not designed for instant commerce. They are designed to keep an entire network of global peers in agreement on the status of the Bitcoin ledger.
15/ An individual doesn't use Bitcoin basic network to buy coffee. Then what is it used for? It is used by people as a neutral, counterparty free way to store money.
16/ Those who rely on big institutes to hold their BTCs (e.g. in case of ETFs), they will never hold the first layer BTC. They will only hold the second layer BTC since they won't have the private keys. This just defeats the basic principles of BTC as a differentiator over fiat. These custodians would be subject to government jurisdiction and intervention.
17/ Lightning network is the layer built on top of the Bitcoin network with an aim to process millions of lightning Bitcoin transactions per second without changing any of the Bitcoin network rules. It's a scalable, off chain instant payment system. Payments in this area settled instantly without waiting for the next block to be mined
18/ CBDC (Central Bank Digital Currency) is the crypto equivalent of fiat money. It is issued directly by the Central Bank to the public, bypassing the private banks, which are generally supposed to lend money to the public after receiving from Central banks. This reduces the role of banks.
19/ Bitcoin is where the internet collides with money.
20/ All future money will be digital.
Hope these 20 tremendous lessons will help shape up your thought process to some extent and help you appreciate life much better.
If you are interested in reading about such learning from other all-time best-selling books, you may click here.
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