Real bills

Bitcredit Protocol is designed to provide always-on liquidity for the real economy, provided by businesses for businesses in the production and supply chains. Without it, trade and production stalls, products spoil, value gets destroyed.

Time tested bills of exchange, now in electronic format (e-bills) are issued and paid by businesses. The credit volume is objectively limited by the market value of goods in the supply chain, the reflux upon their sale extinguishes it. This gives a self-limiting mechanism which adjusts the currency supply in lockstep with demand. 

Bitcredit Protocol is designed to fix the defects in historic bill discounting practices by the loosely coupled banknote issuance of the historic Real Bill Doctrine, as criticised by the Austrian School of Economics, by retaining the linkage to real goods at all times.

Present vs. future money

Historically, when free banks 'discounted' bills with a future maturity date they issued new notes, paper currency, and kept the bill in their vault. These is prima facie indistinguishable from notes for warehoused gold payable on demand, despite being fundamentally different: notes for warehoused gold can be redeemed immediately, bills for trade credit can be redeemed only after selling the goods for curcency.

After politicians legislated a monopoly on currency production, real bills could only be discounted for central bank notes, which institutionalised the breaking point. Finally, commercial banks discounted bills by creating demand deposits. All these practices conflate future credit money with present base money. This seemingly small difference is the source of a host of problems, including contagious bank runs when currency holders lose trust in a bank. 

Bitcredit Protocol mechanics solve this problem. Wildcats never issue notes, e-cash is produced by cryptographically splitting e-bills into divisible units, strictly retaining its distiuishing attributes, the business issuer and the maturity date. Finality extinguishes the total e-bill and thus all e-cash. This method eliminates the timing mismatch of both prior state-of-the-art methods, paper technology and bank deposits, thereby removing the root cause of bank runs.

As Bitcoin and Bitcoin credits should always be kept in end users non-custodial wallets, secured by 12 secret words, until used for consumption, saving or investment.

Decentralisation vs. centralisation

When banking law gives a monopoly to central banks and introduces overspecified legal tender restrictions, this not only opens an inroad for fiat currencies, it also introduces a constant tendency towards centralisation. This trend is transmitted to commercial banks and demand deposit production because the inherent fragility of unbacked fiat results in outsized regulation, unsuitable for a decentralised network of small and medium sized banks, only affordable for big banks and their large corporate customers. This results in a financing gap for small and medium enterprises, which is any economy's source of job creation and innovation. The result is stagnation and inefficiency.

In a vicious cycle, the fragility of the financial system worsens with increasing centralisation. Any single bank default morphs from being just the problem of just one bank to becoming a systemic threat for an entire country's financial system with possible glbal contagion. 

Bitcredit Protocol is decentralised for maximum resilience: any two businesses can freely create e-bills, anyone can spin up a Bitcredit mint and compete on fee and service levels for the custom of businesses which need e-bills split into liquid e-cash. 

Proof-of-work

A central bank, privileged by a legal monopoly and legal tender laws, can issue an excessive amount of bank notes out of the thin air of government debt.  As deficits have no natural limit, overissuance results in inflation, distorted interest rates, destructive boom-bust cycles, asset price bubbles, housing crises, social inequality, trade imbalances, volatile exchange rates and other problems in the economy. 

Private currency creation can also be corrupted when employing unsound issuance policies, as shown by the Crisis of 1763. When credit money is created not against real goods, but by discounting 'dry' financial bills, this is unsustainable and the financial system will ultimately experience a monetary crisis. This is why Bitcoin Protocol rigorously restricts the minting to commercial e-bills issued against goods sold.

Anti-fragility

A bankless peer-to-peer monetary system on Bitcoin rails which relies on commercial bills of exchange can be expected to enjoy excellent liquidity. Highly liquid e-bills preempt the frequent crises in fiat systems caused by overly rigid banking regulations and fallacious 'monetary policy'. A wildcat mint's presence in the recourse chain of prior e-bill holders enhances e-bills due to the mint's verifiable guarantee capital and the cascade of backup guarantees of the totality of mints in the Bitcredit Network. 

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