Bitflate is a cryptocurrency with constant inflation of 7% per year. Its goal is to unlock the Medium of Exchange use case.
When I first learned about Bitcoin, the problem I thought about was its digital form. It will be easily replicated. I later disproved this problem. Bitcoin is a digital currency. But its network effect is very difficult to replicate. I started thinking about the next question: Why is Bitcoin not widely adopted? This seems to be a harder and ongoing problem. Bitcoiners like to pitch hyperbitcoinization. In this future, money is based on Bitcoin. Therefore, people will use bitcoins for transactions. Bitcoin has grown significantly. There’s no indication of how hyperbitcoinization will unfold. Bitcoin seems to be eternally unsuitable for transactions. The problem is volatility. Bitcoin’s supply cap makes Bitcoin volatile. With a hard cap, Bitcoin is a good Store of Value. But volatility will prevent Bitcoin from being used as a Medium of Exchange. Bitcoin is likely unable to fulfill its goal as a currency for transactions. How do we address this problem? Bitcoin is deflationary. The answer seems to be something that’s opposite of Bitcoin: inflationary. Yi (I) Ching, an ancient Chinese philosophy, can provide some guidance. We can apply the Yin/Yang concept in Taoism. We can think of Bitcoin as Yang (or Qian). It is deflationary. Something opposite of Bitcoin is Yin (or Kun). It is inflationary.
Yi (I) Ching is usually translated as Book of Changes or Classic of Changes. Yi (I) means Change. Ching means Book or Text. Its origin is unknown, mostly based on folklore. The concepts likely predated written history. People probably started writing the concepts into a Yi Ching book around 3000 years ago. The book evolves through the 10th and 4th centuries BC into its current form. Chinese philosophy traditions, like Confucianism and Taoism, have their roots in Yi Ching. A lot of literature and interpretation around Yi Ching is about divination. Such use leads to superstitious beliefs. This impression prevents people from studying the concepts. I recently learned that the binary number system (0 and 1) has roots in Yi Ching. The system is a basis for computing and information technology. Leibniz was inspired by Yi Ching to create the binary number system. Yi Ching points to The Way. It is a reflection of how the universe operates. When we attempt to disturb this balance, the system can malfunction in unexpected ways. When we over-rationalize a concept, we may distort reality. Hyperbitcoinzation is an example. We would put ourselves through more suffering. Yi Ching can help us discover The Way.
Important Note: Yi Ching contains interpretations. They are subjective. Yi Ching is a tool to help us understand the flow between Yin and Yang. It does not predict future events. Such claims are superstitious.
Yi Ching Basics
Yi Ching, at the core, is a symbolic system. Based on the symbols and interactions of these symbols, people derive interpretations. In this section, I provide a brief overview of the concepts. The interpretations are extensive. You can read more about Yi Ching through books and online.
To construct the symbols, we start with 2 basic symbols: yin (‒ ‒) and yang (‒‒). Yang is a dash and Yin has a space between a dash. We can apply these two concepts to interpret things. You can think of Yang and Yin as light and dark, black and white, positive and negative, hot and cold, man and woman. For a phenomenon, there can be multiple interpretations. For example, in the number system, Yin and Yang can be zero and one, zero and infinity, or positive infinity and negative infinity. People also invented more symbols for Yin and Yang. Taijitu is one. It’s a relatively recent invention. It was invented around the 11th century by Song Dynasty philosopher Zhou Dunyi.
Yin and Yang (Source: wikipedia)
We can interpret a phenomenon using Yin and Yang. Interpretations are subjective. They’re not final truths. Yi Ching is a tool to help us understand. Here are more examples of Yin and Yang.
Yin and Yang Examples
Yi Ching started with 2 symbols. The world is more complicated to explain everything with 2 symbols. Yi Ching provides more. We can generate combinations of these 2 symbols. The next level up is called Bagua. We combine Yin and Yang 3 times. The number of combinations is 2^3 = 8.
Bagua - Yin and Yang Combinations (Source: wikipedia)
We now have 8 symbols. People often arrange these 8 symbols into an octagon shape. It looks like below.
Bagua - Fu Xi "Earlier Heaven" Arrangement (Source: wikipedia)
To make the system even more expressive, Yi Ching combines these 8 symbols one more time. The process generates 64 (8x8) hexagrams.
01 ䷀ 02 ䷁ 03 ䷂ 04 ䷃ 05 ䷄ 06 ䷅ 07 ䷆ 08 ䷇
09 ䷈ 10 ䷉ 11 ䷊ 12 ䷋ 13 ䷌ 14 ䷍ 15 ䷎ 16 ䷏
17 ䷐ 18 ䷑ 19 ䷒ 20 ䷓ 21 ䷔ 22 ䷕ 23 ䷖ 24 ䷗
25 ䷘ 26 ䷙ 27 ䷚ 28 ䷛ 29 ䷜ 30 ䷝ 31 ䷞ 32 ䷟
33 ䷠ 34 ䷡ 35 ䷢ 36 ䷣ 37 ䷤ 38 ䷥ 39 ䷦ 40 ䷧
41 ䷨ 42 ䷩ 43 ䷪ 44 ䷫ 45 ䷬ 46 ䷭ 47 ䷮ 48 ䷯
49 ䷰ 50 ䷱ 51 ䷲ 52 ䷳ 53 ䷴ 54 ䷵ 55 ䷶ 56 ䷷
57 ䷸ 58 ䷹ 59 ䷺ 60 ䷻ 61 ䷼ 62 ䷽ 63 ䷾ 64 ䷿
Each symbol has 6 lines. They are either Yin or Yang. As we move from Qian to Kun, we progress through the extreme Yang (Qian) to the extreme Yin (Kun). The combinations between Qian and Kun can be thought of as the “grey” areas. The interactions between Yin and Yang in each symbol can help us predict the expected behavior.
Yi Ching is not very popular in Western philosophy. But Western scholars occasionally made use of it. I mentioned Leibniz and the binary number system. Carl Jung used it to derive the concept of Synchronicity in psychology. Some Western religious concepts are related to Yin and Yang. For example, the Trinity can be seen as Yin and Yang if we consider God and the Holy Spirit as one. The relationship between God and Man is comparable to Yin and Yang.
The Trinity and Yi Ching
It’s important to remember that Yi Ching sets the rules. People derive interpretations. There’re forms of divination related to Yi Ching. But they can lead to superstitious beliefs. Within Chinese philosophy traditions, neo-Confucianism rejects superstitious and mystical elements. Yi Ching points us to a direction that follows the flow between Yin and Yang. It does not and cannot predict the exact event that will happen.
Yi Ching provides a framework. It’s an exercise. We can apply it to situations. It can often help us understand why things evolve.
System Architecture and Governance
We now have a basic understanding of Yi Ching. Let’s apply the concept to system architecture. Yi Ching provides a useful framework to evaluate governance between centralization and decentralization. It can help us understand the trade-offs between different designs. Here’s an example of how computing architecture has evolved.
We can see computing architecture has been made through cycles of centralization and decentralization. We’re currently in the Cloud Computing phase. We’re probably at the end of this phase with the consolidation of technology companies. According to the flow, we should expect to see more decentralization in the next decade. I think this change has already started with the advent of Bitcoin. People often think centralization is bad or decentralization is bad. Interpretations are usually subjective and dependent on situations. But centralization and decentralization are concepts. They’re neither good nor bad. Misunderstanding and false promises are bad. For example, we think centralization offers more choices. It does not. With centralization, we gain efficiency but our choices are reduced. With decentralization, we lose efficiency in exchange for more choices.
Let’s examine some trade-offs between centralization and decentralization. Here are some opposite properties.
Control / No Control: As we move from centralization to decentralization, we lose the ability to change rules. A decentralized system will have many agents. A rule change needs consensus from all agents.
Permissioned / Permissionless: In a centralized system, there are gatekeepers. To participate, one needs to be granted permission. In a decentralized system, it is hard to enforce access. Agents can grant access to new agents.
Censorship / Censorship Resistant: It’s easier to change rules in a centralized system. We only need to update the principal agents or gatekeepers. In a decentralized system, changing rules require a consensus of all agents.
Trust / Trustless: A centralized system requires a high level of trust. Rules can change by a central authority. In a decentralized system, changing rules is difficult and slow. Agents can verify rules and opt-out. If rules are not satisfactory to expectations, you can always leave the system.
Efficiency / Redundancy: A centralized system is efficient. It can optimize its operation because of fewer agents. In a decentralized system, changes need to propagate to all agents. This property leads to a lot of redundancy.
It’s easy to get confused between these trade-offs. People mix trade-offs and make confusing claims. For example, people can claim that a decentralized network only needs 20 - 30 nodes. You can achieve permissionless. From a decentralization perspective, more nodes are always better (more decentralized). When we evaluate a system, more decentralization means more nodes and vice versa. Therefore, a network with 100 is better (more decentralized) than a network with 20 nodes. A network with 100k nodes is better (more decentralized) than a network with 10k nodes. We should evaluate these trade-offs independently.
Money is vital to human societies. It’s a reflection of values that include many dimensions of our experience. Money exhibits many types of Yin/Yang trade-offs. To limit the scope of our discussion, I examine the relationship between Fiat money and Gold. This is the Gold Standard for money. Historically, humans have used other metals as money. But fiat money has been a more robust alternative to metal money. Within the Yi Ching framework, Gold is decentralized and fiat is centralized.
Abundant / Scarce: Fiat is paper money. Authorities can issue as much as they want. Gold is a natural resource. It is scarce.
Utilitarian / Valuable: The goal of fiat money is utility. We want it to facilitate commerce. Gold is scarce so it is valuable.
Stable / Volatile: With fiat money, authorities can control its issuance rate. If issuance is aligned with economic development, we can achieve stability. Gold, on the other hand, is volatile. Its supply is limited. Mining new gold becomes increasingly difficult.
Medium of Exchange / Store of Value: With a stable price, fiat money is more suitable for commerce. It’s hard to exchange if the medium of exchange is unstable. Gold is valuable. It is more suitable as a long-term Store of Value.
If we stick with these principles, we can have a healthy economic system. There are cycles between stability and volatility. Unfortunately, humans are not good at dealing with short-term volatility. We want stability and growth. We “fix” the system by changing rules. We deviated from the Gold Standard. This deviation happened many times in the past. The latest attempt to abandon the Gold Standard is in the 1970s. On 15 August 1971, the US terminated the exchange between the US dollar and gold. Without a monetary standard, it’s easy for some groups to abuse the rules. I think this detachment increased wealth inequality. Wage increase have lagged productivity increase since the 1970s.
Gold rushes were boons for decentralization. People have access to new gold. That can weaken the power of existing authorities. Modern nation-states have grown fast. With the help of technology, they can become monopolies of power. Since the start of the Industrial Age, humans have mostly colonized planet Earth. There are very few places that we have not reached. It is increasingly difficult to reach the frontiers. We cannot walk down to the deepest parts of the ocean. We need expensive and high-tech submarines. It is difficult to mine more gold from the Earth surface. At the same time, central governments have accumulated the majority of the gold supply. Gold has lost its decentralized properties. It has moved closer to centralization. The Gold Standard is unlikely to return. In the case of gold, we can label Yang as decentralization and Yin as centralization. Gold has started as Yang. It’s moving closer to Yin. Yi Ching provides a 64-hexagram scale. From the pre-Industrial Age until now, gold has lost half of its decentralization property. It has moved from (Qian / Force / 6 Yangs) to (Gou / Coupling / 5 Yangs) to (Pi / Stagnation / 3 Yangs). The below diagram illustrates gold progression from decentralization to centralization.
Since the 1970s, money has become increasingly centralized. As we more to further away, money loses its decentralization properties. Fiat money has converged into the US dollar. Gold is locked up in central banks’ reserves. People trust their governments less. When we break the balance between centralization and decentralization, volatility is an expected result.
According to Yi Ching, the imbalance would need to be addressed. We would gradually move to a more decentralized monetary system. In 2008, Satoshi Nakamoto introduced the Bitcoin whitepaper. I think it is an important breakthrough. It breaks the existing centralization of fiat and gold. Bitcoin creates a new path to restore the balance, The Way of Yi Ching. Bitcoin introduced new decentralization properties. Its nodes are designed to be lightweight. It does not cost very much to run a node. Everyone can mine it with a commodity hardware. Bitcoin mining uses electricity. That is an abundant resource. It’s available to most people. It’s geographically distributed. There’s little barrier of entry to Bitcoin mining. This is an important property for decentralization. It’s difficult for centralized authorities to control access to Bitcoin.
Bitcoin is based on cryptography. The math is based on cryptographic hash functions. A cryptographic hash function is a one-way function. It’s easy to compute the output given an input. But it’s difficult to compute the input given an output. A cryptographic hash function is irreversible. Bitcoin uses cryptography to ensure decentralized agents can verify each others’ work. Bitcoin is possible with the mathematical properties of cryptography. It follows The Way of nature. Bitcoin reveals new Yi Ching interpretations.
Bitcoin and Yi Ching
Gold is physical. It exists as objects in the physical world. Being a digital technology, Bitcoin can push its design to the extreme. It can achieve more decentralization properties. It is an ideal of what humans want to achieve. Compared to gold, Bitcoin is more scarce, more valuable, more volatile, is a better Store of Value.
Bitcoin supporters pitch the idea of hyperbitcoinization. That is when Bitcoin becomes the ideal form of money. However, there’s one problem with Bitcoin: volatility. Being extremely scarce and decentralized, Bitcoin is inherently volatile. No amount of will power and advocacy can fix the issue. Bitcoin owners can be divided into long-term holders and short-term traders. Price movements are entirely affected by short-term traders. This means Bitcoin’s price can be easily manipulated. Bitcoin suffers the same problem with centralization. Nation-states can start acquiring bitcoins for reserve. They can pump and dump retail investors out of the game. They would be in stronger positions to manipulate Bitcoin’s price. Individual coin holders don’t have the same leverage. If the Fed decides to enter the Bitcoin game, investors are going to lose. Once nation-states monopolize the Bitcoin supply, we’re back to the same centralization problem like gold.
Fortunately, being digital, Bitcoin can spawn copycats, aka, altcoins. It is also an unfortunate outcome. Many altcoins are scams. In this post, we won’t dive into scams. We analyze the relationship between Bitcoin and other cryptocurrencies. Bitcoin is a complex phenomenon. It’s multi-dimensional. It competes and supports other monies. In some ways, altcoins compete with Bitcoin for attention. In other ways, altcoins enhance Bitcoin’s decentralization properties. If authorities want to censor Bitcoin, people can still transact using altcoins. That makes Bitcoin more resilient to censorship.
It is complicated and confusing to evaluate altcoins. People make different claims about how the market would evolve. Yi Ching can provide a framework to evaluate Bitcoin against other currencies. Let’s examine properties between Bitcoin and some other cryptocurrencies: block size, scarcity, technology.
For block size, we compare Bitcoin and Bitcoin Cash. On average, the Bitcoin network produces a block every 10 minutes. Your transactions are not confirmed until they are included in a block. Block size limits the number of transactions. During peak times, transactions can overwhelm block space. Users will need to wait longer for confirmation. Bitcoin Cash is a hard fork of Bitcoin. It increases the block size from 1 MB to 8 MB. Bigger blocks can store more transactions. They will reduce processing time. Bitcoin Cash later forked into 2 chains: Bitcoin Cash and Bitcoin SV. Supporters of Bitcoin Cash claim the change is vital for the long-term adoption of Bitcoin. More people will be able to use Bitcoin for transactions.
Bitcoin vs. Bitcoin Cash
Bitcoin Cash evaluates poorly using the Yi Ching framework. Bigger block does not move Bitcoin towards being a Medium of Exchange. Bigger block reduces decentralization. The blockchain will be bigger. Running nodes is more costly. Bitcoin’s volatility is in its hard cap. To make such a claim, Bitcoin Cash supporters abandon Yi Ching. But doing so violates The Way. As a result, Bitcoin Cash becomes more irrelevant over time.
Scarcity and Technology
For scarcity and technology, we compare Bitcoin and Ethereum. Ethereum was introduced in 2015. It’s rebuilt from the ground up. It makes several major changes. Its supporters pitch Ethereum as a programmable blockchain. Besides, it has a flexible monetary policy, Minimum Necessary Issuance.
Bitcoin vs. Ethereum
A flexible monetary policy requires “someone” to decide. This change decreases decentralization. It moves Ethereum closer to fiat money. Programmability is also not a clear differentiation. Bitcoin is digital. It can also be made to be programmable. People can move bitcoins into a centralized address and make them programmable off-chain. Under the Yi Ching framework, Ethereum does not have meaningful differentiation.
Inflation and Deflation
Bitcoin’s most prominent property is its hard cap. The property makes Bitcoin digital gold. But it also makes Bitcoin volatile. Bitcoin is deflationary. To address this problem, Yi Ching points us to the direction: inflation. The opposite of Bitcoin is an inflationary cryptocurrency. This is the inspiration for Bitflate. It is designed to have a moderately high inflation rate, 7% per year. A low inflation rate, like 1 - 2%, is not a meaningful differentiation. Bitflate is a ridiculous idea on its own. Nobody likes to have their money devalues 7% per year. However, Bitflate is not designed to operate on its own. It’s designed to work together with Bitcoin. We need to evaluate Bitflate with Bitcoin.
Bitcoin vs. Bitflate
Since 2008, we’ve been on a search for the Ideal Money. Some people think Bitcoin is It. Others have proposed their so-called improvements to Bitcoin. Yi Ching, a 3000-year-old principle, can point us in the right direction to discover the Ideal Money.
Bitflate is a cryptocurrency with constant inflation of 7% per year. Its goal is to unlock the Medium of Exchange use case.