Max Pamies i del Campo's Key Ideas from Layered Money
by Nik Bhatia

Initialy, gold and silver coins were issued as a first-layer form of money. Which means that coins where backed by its own value depending of the purity of gold/silver contained.

First records of coins usage trace back to around 700 BC in Lydia, modern-day Turkey.

Over the years, each region minted their own coins, which varied in gold/silver purity.

Gold & Silver Coins were a huge implementation for humanity growth & evolution. Unfortunately they had some cons:

• Coin Multiplicy: There were too many different currencies, which was an issue to money velocity (how quickly money changes hands).
• Risks of Physical Transfer: sending coins across land and sea was dangerous and a logistical nightmare during the medieval era.

First of all we need to see the difference between first layer & second layer money:

• A gold coin - First Layer Money.
• A piece of paper (bills of exchange) that says: "The Medici banking family will pay one gold coin to the bearer on demand". - Second Layer Money.

The gold coin is a first layer money because it is the basis of the monetary system. If the gold coin wouldn't exist the piece of paper wouldn't neither.

With the emerging layered money the arise of centralized entities was a matter of time.

The first to appear and take control of the monetary system were the Bank of Amsterdam and the Bank of England.

Both entities gave unpredecented power over the peoples' monetary affairs to their governments.

It was created back in 1609 and thanks to the world's first joint-stock company, the Dutch East India Company (Vereenigde Oostindische Compagnie, or VOC).

The VOC was the first example of equity investors providing capital in exchange for a share of ownership in the form of a paper certificate.

As the shares increased in value, original investors wanted to realize gains by selling them for cash to new investors, and that is how the first stock market was born.

All cashiers were forced to surrender precious metal to the Bank of Amsterdam and were issued BoA deposits in return.

The Bank of England was created in 1694 with the purpose to purchase new government bonds in an effort to rebuild the country after a crushing defeat of the English navy.

It was tasked with taking custody of precious metal, issuing deposits, effecting transfers between depositors, and circulating notes as cash.

The Bank of England and the Private Sector (private banks/non-government entities) created the third-layer of money.

This third-layer money was issued by Private Sector and its value relied on both BoE Deposits and BoE Notes. Private Sector issued:

• Deposits
• Bills of Exchange

Shortly after an earthquake in 1906 rocked San Francisco, the US immersed into a financial crisis.

Congress passed into law the Federal Reserve System on Decemeber 23, 1913.

The Fed was founded to combat financial crises, and it would do this with a second-layer money called reserves.

Wholesale money (Fed reserves) is money that banks use, and retail money (Fed notes) is money that people use.

The Federal Reserve Act's stated the following purposes:

• To provide for the establishment of Federal reserve banks.
• To furnish an elastic currency.
• Means of rediscounting commercial paper.
• To establish a more effective supervision of banking in the US.

The Act also decreed that at least 35% of the Fed's assets must be held in gold.

Franklin Roosevelt issued Executive Order 6102 on April 5, 1933 which instructed all "gold coin, gold bullion, and certificates to be delivered to the government."

The order was effectively a forced sale of gold in exchange for Fed notes (cash) by all US citizens and eliminate the people's access to first-layer money.

In 1934 the US devaluated the dollar against gold by increasing the gold price from $20.67 to $35 per ounce.

The goal was to attract foreign demand by having the cheapest prices.

In 1944, world leaders gathered at a hotel in Bretton Woods, New Hampshire and formalized that all currencies besides the dollar were forms of third-layer money within the dollar pyramid.

Federal Reserve notes still promised the bearer gold coins on demand at $35 per ounce.

Currencies would have fixed exchange rates with the dollar and wouldn't themselves be redeemeble for gold.

In 1971, the United States suspended gold convertability for the dollar; the suspension was supposed to be temporary, but the dollar never returned to any linkage with the commodity.

Two years later, the modern era of free-floating currencies began, officially ending the Bretton Woods agreement.

Gold transitioned to the informal role of neutral money, still held today by governments and central banks around the world as first-layer, counterparty-free money.

Bitcoin originated back in 2008, forty-six days after the fall of Lehman Brothers. Its whitepaper was sent to a very small online community called the Cryptography Maling List.

The paper was written by Satoshi Nakamoto. The creator remains unknown even now, something that strengthens Bitcoin's neutrality, as no leader exists who wields too much influence, can be coerced or blackmailed, or will try to change Bitcoin's rules.

Satoshi would send his last knwon correspondance in April 2011 and disappeared from the Internet forever.

It is a completely revolutionary form of money which is characterized by being:

• Immutable and Antifragile.
• Secure and Trustless.
• Transparent and Neutral.

Bitcoin officially refers to two things:

1. The Bitcoin software protocol.
2. The monetary unit within that software.

Bitcoin uses the Secure Hash Algorithm 256 (SHA256) as security mechanism.

BTC is digital gold. It's a form of money. People trust BTC because they believe it to be rare and valuable. It has a price in hundreds of different currencies. It doesn't originate from the balance sheet of a financial institution, just like gold doesn't.

BTC is digital land. There are only 57 million square miles of land on Earth. Similarly, there will only be 21 million BTC. This digital land is divisible into the tiniest of parcels.

Bitcoin works similarly to email. Email addresses can be shared with anybody, but only the password holder can access received messages.

The Bitcoin blockchain most fundamentally describes a record of transactions simultaneously kept by all peers in the network. Blockchain can be understood as a Distributed & Public Ledger.

Bitcoin mining is the process of verifying new transactions to the Bitcoin digital currency system, as well as the process by which new bitcoin enter into circulation. 

For each block successfully mined the winner of the Proof of Work problem of that block gets awarded with 6.25 BTC as an incentive to maintain the blockchain running. This BTC issuance is reduced every 210,000 blocks mined to the half.

The invention of Bitcoin has changed money forever and forced central banks to respond with their own iteration of cryptocurrency.

Worldwide, central banks are preparing to launch central bank digital currencies (CBDCs) as another second-layer monetary instrument originating from their balance sheets on par with reserves and paper currency.

It's uncertain how CBDCs will be constructed, how similar or different their technology will be to Bitcoin's, or the impact they'll have.