The Bitcoin Newsletter 14 - How Bitcoin & Nostr foster innovation without institutional credit
Welcome to the 14th edition of The Bitcoin Newsletter
I recently returned from Nostraisa, the second edition of the Nostr conference. To put it simply, Nostr is a decentralized protocol for transmitting non-censorable information. In conjunction with Bitcoin, it offers market participants an ideal tech-stack to communicate and collaborate without being subject to centralised control. This can lead to a new sense of autonomy and self-reliance within the market. Through this bottom-up approach, true innovation can potentially flourish and emerge from the market. In this issue of the newsletter, I will explain why.
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Best Regards,
Leon
DEEP DIVE
How Bitcoin & Nostr foster innovation without institutional credit
In 2015, the Lightning Network introduced a second-layer payment protocol for Bitcoin, enabling fast transactions and micropayments. The Lightning Network addresses, in part, the problem of how to scale Bitcoin so that it can be used by all of humanity. What was still missing was a protocol for convenient censorship-resistant information exchange independent of central authorities.
Nostr at a glance
In late 2020, a Lightning developer called Fiatjaf published his ideas about a censorship resistant social network which he called Nostr - notes and other stuff transmitted by relays. With the introduction of Nostr shortly after, a protocol that enables a censorship-resistant and global social network for permissionless information exchange, a new territory of freedom is opening up in the same stack as Bitcoin and Lightning. Nostr isn't built on top of the Bitcoin blockchain, but it does support bitcoin payments over the Lightning Network. In addition to the like feature that traditional social media platforms also use, a feature called "Zaps" allows users to tip other users for content they enjoy by sending satoshi (the smallest denomination of bitcoin 1/100M) over the Lightning Network. This can have many possible positive implications. One key example is that it allows digital creators to monetize their content directly without having to rely on third parties.
Notably, Edward Snowden was one of the early adopters and posted about Nostr in January 2023, and Twitter founder Jack Dorsey provided a 14 BTC grant for development. Many Lightning clients, relays, and other services are also experimenting with how Lightning and Nostr can interact.
Importance of Nostr
Until today, there was no convenient way to facilitate censorship resistant exchange of information online. The ability to exchange information directly without a state, a company or any centralised institution controlling or preventing this exchange, is groundbreaking. In countries like Iran, where there is no freedom of expression, Nostr helps people share and exchange information anonymously. But, Nostr could have much more far-reaching effects on various areas of human existence.
For example, innovation. Specifically, among others, in the areas of software, hardware, mobility, artificial intelligence, robotics and data. As I will show below, Nostr is much more than just a protocol for social networking; it has the potential to fundamentally change how humans interact, communicate, collaborate and innovate.
Innovation, gold and the free market
Throughout history, innovation has largely flourished independently of government and institutional support. The Greek Thales observed around 600 BC that amber, when rubbed with silk, attracted feathers and other light objects, thus discovering static electricity. Carl Benz, who was inspired by Nikolaus Otto, who invented the first gas engine in 1861, invented the first car in 1886. He financed his ventures largely from his company's income and not through help from outside investors. The Wright Brothers are widely believed to be the first to invent and fly an engine-powered airplane on December 17, 1903 in Kitty Hawk, North Carolina. A bicycle shop provided the funds for the ventures of the Wright brothers.
During the gold standard and times of hard metal currencies, saving allowed entrepreneurs to have time to address problems and accumulate enough capital to self-fund innovation. Today, it would be nearly impossible for a privateer, a startup or bike shop owner to make enough money to take the time to think about innovations and then self-fund the implementation. Inflation has significantly increased labor and material costs. Particularly in industries such as aviation and the automotive industry. So much so that business owners and freelancers usually rely on third-party loans.
Inflation has made it increasingly difficult for innovations to emerge from the market. This is problematic because the institutions that typically finance entrepreneurs, including venture capital firms, banks and universities, are largely dependent on the state in one way or another (either by law or because they receive government funding) and therefore are incentivised to pursue a political agenda and predominantly support projects that follow this agenda. The result is a banal misallocation of capital and social stagnation, as can be observed worldwide.
Credit, fiat and the state monopoly on innovation
Credit has become part of a control system used in conjunction with fiat money by the government to maintain its power. Historically, technologies and social movements that undermined the monopoly power of the state and its affiliated institutions were banned from outside. At least it was tried. A good example is the way Bitcoin is treated by the state, how poorly it is talked about in most universities and how banks view it negatively, because it threatens the existence of these institutions. This behaviour is generally observed among monopolists and initially makes it more difficult for entrepreneurs to enter new disruptive markets such as Bitcoin and shifts competition in favor of the monopolist (the state). The creation of money and the granting of loans are of great importance for maintaining the state's monopoly position.
Bitcoin and the weakening state innovation monopoly
With the introduction of Bitcoin in 2009, the state monopoly on money was broken. For the first time since the gold standard, people can save in hard money again. Bitcoin is the hardest money ever created, due to its finite supply cap and excellent monetary properties.
This allows entrepreneurs to preserve the value of their efforts. Which gives them time and long-term capital to focus on problems and find appropriate solutions. Once again there is a chance for innovation to emerge from the free market (bottom-up).
Innovation and communication
Today, innovation requires more than just capital and people with time. There is a need for efficient and secure real-time communication options for people around the world. Collaboration is crucial to efficiently solving increasingly complex problems in a globalised world. Cunningham's Law, which states that the best way to get the right answer on the internet is not to ask a question; but post the wrong answer because others will correct you, underscores the value of collective intelligence.
Unfortunately, the institutionalised credit system has effectively stifled humanity's collective creativity by creating a dependency on a central organ (the state). This disrupts the progress and prosperity of humanity that comes from a free market, where capital and information can be freely exchanged.
Nostr as a tool for innovation
With Nostr, which complements the Bitcoin and Lightning protocol suite by adding a layer of social networking and censorship resistant information exchange, market participants worldwide can finally communicate and collaborate independently.
This has the potential to enable rapid problem solving and bottom-up innovation that no one can keep a lid on. People can now successfully save in bitcoin, communicate via Nostr, and pay each other in bitcoin via Lightning. Independent of a central authority. Nostr, though not built on the Bitcoin blockchain, makes use of peer-to-peer bitcoin payments through the Lightning Network.
As mentioned, the first widespread application is a censorship-resistant social network that can be accessed through various clients, notably Damus, Amethyst and Iris. Similar to how one can access the Email Protocol IMAP through various clients like Gmail, Yahoo Mail, etc. (simplified example).
Nostrasia Conference reflection
At the Nostrasia conference in Tokyo, I realized that this is just the beginning of Nostr. The very early beginning. To me it feels similar to Bitcoin in 2012. Countless Nostr applications are currently being created by developers across the globe.
Nostrocket, for example, is an application that coordinates decentralised, Bitcoin-based economies, rewarding contributors who collaborate to find solutions to global challenges. The application uses censorship resistant communication via Nostr and direct bitcoin payments via the Lightning Network, to create economically sustainable organisations that solve problems in the critical path towards a global Bitcoin standard.
The potential applications of Nostr seem enormous. I invite you to explore the possibilities of the protocol to gain a deeper understanding. With Bitcoin, humanity has the opportunity to build on an open monetary system. With Nostr, innovation can emerge from the free market (bottom-up). Ingenuity can be rewarded again.
Nostr tips
Damus app if iOS
Profile pic - upload here nostr.build
Nostrplebs.com - register
Alby or Wallet of Satoshi - Lightning Wallet
Follow me. My Nostr PubKey is: npub1v5k43t905yz6lpr4crlgq2d99e7ahsehk27eex9mz7s3rhzvmesqum8rd9
WORTH TO KNOW
Podcast and publications
Bitcoin Magazine: Bitcoin will completely change real estate markets and interest rates
Recently, I have published a new essay in Bitcoin Magazine in which I show that bitcoin is likely to replace real estate as one of the elementary assets in the global financial system. This would also fundamentally change the cost of housing, lending and interest rates, because all of these variables greatly influence each other. I explain in detail what these changes might look like. READ
Aprycot Media: Bitcoin ist kein Eigentum
The leading German Bitcoin publisher, Aprycot Media has published the German translation of my recently published article in Bitcoin Magazine “Bitcoin is a possession, not a property”. In the article, I explain the unique nature of bitcoin as a digital asset that renders it impossible to seamlessly align with the traditional framework of property and where it falls into place as an asset based on its properties. READ
Simple Bitcoin TV appearance
Lately, Nico and Opti from Simple Bitcoin TV invited me to discuss privacy, real estate and Bitcoin on their show. Starting at minute 50:56, you can catch us talking about Bitcoin's transformative potential for the housing market. I really enjoyed the conversation. WATCH
IDEAS OF INTEREST
Nostrasia recap - Max DeMarco, who also made a great documentary about Nostr (see Nostr tips), posted a video recap of the Nostrasia conference in Tokyo.
Building a Bitcoin-Based Civilization with Other Stuff - Nostrocket developer GSovereignity and Nostr developer Arkinox held a great presentation about the possibilities and the positive impact of building a Bitcoin-based civilization and Nostr's role in getting there.
If you want to support me. Feel free. You can send me some satoshi/bitcoin.
My lightning address is: law@getalby.com
My bitcoin address is: bc1qyc9q89wjzmvaw729tj3wsrsfhft53mjycrjxdk
Nostr PubKey
npub1v5k43t905yz6lpr4crlgq2d99e7ahsehk27eex9mz7s3rhzvmesqum8rd9
Resources
Leon A. Wankum - Bitcoin is an ETF on global ingenuity
Cunningham's Law
Photo Credit: Wilbur Wright and balloonist Ernest Zens sit in the Wright Model A Flyer at Camp d'Auvours, France in the early 1910s (Source).
Disclaimer: the content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Make sure you do your own research before making any investment and be aware of your own risk tolerance. If you like to build on my thoughts, feel free, but please cite me as the source. 2023 - Leon A. Wankum.
Editing and content creation by Clemens Haidinger.