Real bills

Bitcredit Protocol is designed to serve the real economy, the production businesses which create wealth and prosperity. Payment with bitcoin redeemable credit money, we call 'bitcredit' or short 'credits'. The supply of credits is strictly limited by the volume of circulating e-bills, drawn and paid by businesses. This volume in turn is limited by the value of circulating goods already produced. It is a natural, self-limiting mechanism for adjusting the money supply in lockstep with economic activity, industry and commerce. 

A modernised, Neo-Austrian Real Bills Doctrine is a core element of this solution. Bitcredit seeks to fix the defects in the historic bill discounting practices and the Real Bill Doctrine, as criticised by the early Austrian School of Economics as follows:

Present vs. future money

When traditional banks discounted real bills with a future maturity date they created paper money, currency, indistinguishable from gold certificates payable on demand. Likewise, the practice of crediting discounted amounts to demand deposits conflates credit money with outright money. This seemingly small difference is the source of contagious bank runs when currency holders lose trust in their paper. 

Bitcredit Protocol mechanics solve this problem, payment of an e-bill is what extinguishes the e-cash produced by cryptographically splitting the e-bill.  There are also no demand deposits, as credits are kept in end users non-custodial wallets, just like Bitcoin. Without the timing mismatch of the paper technology and bank deposit creation, there will be no more bank runs.

Decentralisation vs. centralisation

When bill finality needs high-powered money issued by a central bank, even money creation by banks will show a tendency to centralisation. Banks decide who gets money and who does not, and more bureaucracy needs bigger deal sizes which harms small and medium companies. 

With increasing issuance, the requirement for trust increases. Bank default morphs from being the problem of a bank to being a problem for the whole economy. The basis of issuance in Bitcredit Protocol is any two businesses freely deciding to enter a credit relationship. The wildcat mint therefore merely enhances pre-existing credit, it does not create it.

Bitcredit Protocol decentralises credit money issuance, atomically: each e-bill has its own payer. Bitcredit mints apply the credit discipline of any bill holder while their presence in the recourse chain enhances bill with their verifiable guarantee capital. 

Discount vs. interest

When a central bank, with its monopoly and legal tender laws, issues an excessive amount in bank notes out of the thin air of government debt this increases the supply of money, interest rates decline. Such issuance has no natural limit, it results in inflation and leads to destructive boom-bust cycles. 

But even private money creation can be corrupted, as shown by the Crisis of 1763. When credit money is created merely on the creditworthiness of bankers, on financial bills of exchange, it is inflationary and the system will ultimately experience a monetary, just like fiat.

Decentralised liquidity

A complete monetary system which relies on electronic commercal bills of exchange for the backing of credit money issuance benefits form their excellent liquidity. Upon a sale of an e-bill by a wildcat, its multiple prior signatures are enhanced by the wildcat's verifiable guarantee capital, which makes it a sound short-term investment to deal with any liquidity issue which may arise but without the real value risk inherent in fiat instruments like e-bills.

The Bitcredit Solution

(a) Firstly, Bitcredit Protocol mints can only create money for verifiable real value in circulation, i.e. e-bills issued in payment of goods and B2B services already produced as input for the production and supply chain. This indispensable rule firmly roots Bitcredit supply in the objective economic reality: the medium of exchange tracks what can be exchanged. 

(b) Second, this replaces the hubris of monetary policy of central planners with a free market mechanism: as the volume of e-bills sent to mints increases and decreases, their minting fee will rise or fall accordingly which naturally regulates Bitcredit supply. 

In summary, Bitcredit mints are responsible and liable by their guarantee capital to prevent excessive credit money issue. They must verify every real e-bill's backing by the invoice paid and the delivery confirmation attached encrypted to any eligible bill.

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