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The Evolution of Currency:
Bridging Traditional Banking and Cryptocurrency with TNT
by Joseph Mark Haykov; assisted by Phillip and Nathan Haykov as interns
May 17, 2024 – finalized – official version 1.09 of this paper
Abstract
Transparent Network Technology (TNT) merges established banking practices with Decentralized Finance (DeFi), prioritizing the reduction of asymmetric information through increased transparency. Unlike the continuous, real-time processing typical in cryptocurrencies such as Bitcoin, TNT adopts a batch processing approach similar to that traditionally used by banks, where transactions are accumulated throughout the day and processed overnight. This method, employed by banks since the Italian Renaissance, significantly enhances both efficiency and security. We highlight how TNT utilizes the Nash equilibrium concept from game theory to ensure transaction integrity and mitigate prevalent risks such as double-spending in decentralized systems. Furthermore, we explore the legal ramifications of integrating dual signatures in TNT-bank transactions, an additional advantage of batch processing, which establishes these transactions as legally enforceable contracts. By critiquing the limitations of Bitcoin’s framework and illustrating the enhanced capabilities of TNT, we advocate for a paradigm shift in cryptocurrency practices to better align with those of traditional banks, suggesting a model that could redefine money.
Keywords: Transparent Network Technology; Decentralized Finance; Asymmetric Information; Batch Processing; Cryptocurrency; Bitcoin; Legal Ramifications of Cryptocurrencies; Nash Equilibrium; Double-Spending; Traditional Banking Integration; Cryptographic Hash Functions; Homomorphic Encryption; Digital Signatures; Smart Contracts; Payment Processing; Energy Consumption; Fraud Risks; Mining Process; Proof of Work; Proof of Stake; High-Frequency Trading; Arbitrage; Forex Market; Fiat Currencies; Game Theory; Information Symmetry
JEL Codes: G21; G23; K22; C72; E42; E51
Introduction
Cryptocurrencies are a hot topic in today’s financial discussions, primarily because they mitigate counterparty risk. This risk reduction is facilitated by having multiple custodians store copies of the blockchain ledger, including miners and the peer-to-peer nodes to which wallets connect. Bitcoin's substantial market capitalization, along with its adoption by major Wall Street firms such as BlackRock and Fidelity, which have made direct investments in cryptocurrencies to support Bitcoin-backed ETFs, underscores the increasing popularity of cryptocurrencies1. However, engagement with cryptocurrencies can introduce unforeseen challenges. For instance, BlackRock’s Ethereum wallet was recently inundated with coins of ill repute.
Beyond such anecdotes, cryptocurrencies face real challenges, including high energy consumption and elevated fraud risks due to information asymmetry in payment processing. Many users of cryptocurrencies, such as Bitcoin, have limited knowledge about the miners processing their transactions, such as their geographical locations or the exact number of active miners. This lack of transparency can facilitate fraudulent activities. The significance of this problem is discussed in scholarly works like George A. Akerlof’s "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism" and Jensen and Meckling's "Theory of the Firm."
This paper examines how Transparent Network Technology (TNT) — a peer-to-peer software system — addresses these challenges by integrating traditional banking protocols, specifically batch processing, into cryptocurrency transactions. This integration effectively eliminates the potential for fraud associated with information asymmetry in pending payments, thereby enhancing both security and transparency.
Redefining Money: The Debate Over Bitcoin, Gold, and Fiat Currencies
Currently, there is a broad spectrum of opinions regarding what qualifies as money. This is evidenced by ongoing debates about whether assets such as gold or Bitcoin should be considered money, or whether the term should be limited to fiat currencies like the dollar. These debates are fueled by the fact that, unlike fiat currencies, neither Bitcoin nor gold is commonly used for everyday transactions today, with notable exceptions such as Bitcoin's use in ransomware payments. Critics, including the late Charlie Munger, have disparagingly—and perhaps justifiably—referred to Bitcoin as a "turd" due to its suitability for such unconventional uses. Similarly, despite gold's historical role as a medium of exchange, its limited use in this capacity today raises legitimate questions about its status as money, according to widely accepted monetary theories in mathematical economics.
As detailed in 'A Walrasian Theory of Money and Barter,' 19th-century economists emphasized the indispensable role of money as a medium of exchange, a crucial function needed to overcome the double coincidence of wants in direct barter systems. However, within the Arrow-Debreu model—a cornerstone of modern mathematical economics—money's role is limited; here, money serves merely as a unit of account, in which prices are expressed to achieve a Pareto-efficient market equilibrium. For this reason, the hypothesis that the primary purpose of money is to serve as a medium of exchange, originally posited in the 1870s, has evolved into a dominant dogma within mathematical economics. According to this now axiomatic view, any asset not primarily used as a medium of exchange is not considered money, fueling ongoing debates about the nature and function of money.
In these debates, regardless of whether one considers assets such as Bitcoin and gold to qualify as money, gold remains particularly problematic as a store of value. It can be lost, stolen, pilfered by household members, or even expropriated by governments, as evidenced by the 1933 confiscation under President Roosevelt. The continued use of gold as a store of value and the defense of its monetary status only serve to highlight the inadequacies of fiat currencies by comparison.
However, there is no debate that money has taken many forms throughout history, ranging from cattle and tobacco leaves to cowrie shells, and from gold and silver coins to contemporary fiat currencies. This practice of using diverse forms of money continues today. Various currencies—referred to as units of account in the Arrow-Debreu model of mathematical economics, or simply as units of money—are simultaneously used to facilitate global trade. This diversity is evident from the approximately 30 different currencies actively traded on the Forex market. Each of these currency units (or money units), such as the Euro (EUR), is recognized as a valid form of fiat currency within its respective country or regional economy.
The Essential Functions of Money: A Consensus Across Time and Theory
Despite any apparent disagreements, there is, in fact, universal agreement and full consensus on the three essential functions that any form of money must perform in the economies that use it. As outlined by the St. Louis Fed2, both historically and currently, money fulfills three fundamental roles across all economies: it acts as a unit of account ("U"), a store of value ("S"), and a medium of exchange ("E"). These roles, conveniently abbreviated as "USE," not only provide a mnemonic but also offer a practical framework for discussing the nature and function of money in this paper.
Heeding Bertrand Russell's wise advice to future generations, given in his 1959 interview3, we recognize a clear imperative to transcend existing dogmas and focus on factual evidence. Indeed, the views of Jevons, Menger, Walras, Arrow, and Debreu are not in conflict; rather, they complement each other and align with the empirically observed roles and functions of money as detailed by the Federal Reserve Bank of the United States. To recap: in the 1870s, William Stanley Jevons, Carl Menger, and Léon Walras emphasized the pivotal role of money as a medium of exchange, essential for overcoming the double coincidence of wants problem inherent in direct barter systems. In contrast, the foundational Arrow and Debreu model of modern mathematical economics, which does not directly address money, treats it simply as a necessary unit of account—used to measure equilibrium prices.
The equation U = S + E synthesizes these perspectives by establishing as an axiom that the total spendable money supply, classified as M2 in the U.S., not only functions as a unit of account (U) but also serves dual roles as a store of value (S) and a medium of exchange (E). This framework refines the traditional quantity theory of money (MV = PY) into a more precise accounting identity (EV = PY), where 'E' specifically refers to the portion of the M2 money supply that is actively used in transactions, excluding funds that remain dormant in savings accounts for years.
Furthermore, the equation U = S + E illuminates how the exchange value—or the purchasing power—of a currency is determined by its utility value. For instance, Bitcoin’s current market capitalization of approximately $1.3 trillion is determined by its utility, or 'U = S + E' value, reflecting its effectiveness in fulfilling its three functional roles: 'E' as a medium of exchange, 'S' as a store of value, and 'U' as a unit of account. In its role as a unit of account ('U'), money not only measures the relative prices of competing products, such as cars, but also relates these prices to wages and the time required to earn them, thus representing the true opportunity cost for individuals who act as both consumers and producers in the Arrow-Debreu model.
This understanding of monetary identity challenges traditional dogmas, aligning historical perspectives with contemporary economic functions. As money continues to evolve, so too does its role in the economy, influenced by its effectiveness in fulfilling the functions of 'E', 'S', and especially 'U'. TNT Bank money, designed to excel in all these roles, aims to surpass other digital currencies by enhancing payment capabilities and addressing the limitations of systems like Bitcoin and Ethereum.
Cryptocurrencies Today: The Case of Bitcoin
Some argue that Bitcoin’s value is merely a product of collective belief in its monetary worth. However, Bitcoin's enduring significance—evidenced by its longevity, market capitalization, and widespread acceptance—is fundamentally rooted in its functional capabilities, not merely speculative belief. Aristotle, an early pioneer of economic thought, differentiated between use value and exchange value—concepts central to mathematical economics and later echoed by Marx. Both thinkers emphasized the distinction between the market price (or exchange value) of objects and their subjective use value. This use value might be the practical utility of items like shoes or a winter coat, or it could confer social prestige, such as flaunting new Louboutin shoes or a sable coat. This subjective use value, derived from personal consumption, is elusive to third-party observers but distinct from the exchange value determined by market prices. Typically, use value and exchange value are in market equilibrium, but a significant divergence between them often indicates a "bubble."
The phenomenon of 'Tulip Mania' famously demonstrated how the exchange value of an asset can sometimes drastically exceed its use value, culminating in a classic 'bubble.' However, the dynamics surrounding cryptocurrencies like Bitcoin are distinctly different. Unlike assets purely driven by speculative interest, Bitcoin's tangible utility and integration into global financial systems are underscored by actions of major financial institutions such as BlackRock and Fidelity. These firms have successfully lobbied the SEC to permit Exchange-Traded Funds (ETFs) backed by Bitcoin holdings, designating them as custodians of Bitcoin and further legitimizing its role in the financial sector. These developments suggest that Bitcoin’s market value is underpinned by solid financial use cases, rather than merely speculative trading. This challenges the narrative that Bitcoin is simply another economic bubble, underscoring its enduring relevance and stability in financial markets—a perspective that is increasingly accepted today.
Bitcoin's substantial exchange value, compared to other currencies, reflects its significant subjective use value to those who possess Bitcoin wallets and use Bitcoin as money. As a currency, Bitcoin fulfills three essential monetary roles: it serves as a unit of account, a medium of exchange, and a store of value. Like traditional money, Bitcoin provides considerable utility to its users in multiple roles, similar to how the use value of an apartment encompasses not only the living space but also, and far more importantly, location and amenities. Just as an apartment's exchange value is represented by the rent landlords receive—compensating for the use value derived from residing in the space—Bitcoin’s exchange value, currently around $65,000 per unit, mirrors its significant use value. This use value particularly benefits those individuals without access to reliable banking systems, highlighting Bitcoin’s role in providing financial services where traditional banking may be inadequate.
Distinguishing Classical Utility from Marxian Economics:
An Aristotelian Analysis
In this analysis, we employ the dual-definition of 'use-exchange' as applied to value. This concept, originally introduced by Aristotle, differentiates between the 'use value' of a good or service—defined by its subjective benefit to an individual consumer—and the 'exchange value' of the same object, exemplified by its monetary price. Although Karl Marx adopted this terminology and the definitions of use and exchange values align closely between the two, as illustrated in Das Kapital, we specifically utilize Aristotle's framework to ensure clarity and to explicitly distance our analysis from Marx's interpretations, with which we fundamentally disagree.
We specifically critique Marx’s views on the extraction of surplus value from labor. Economists such as George Akerlof, Michael Jensen, and Bill Meckling have consistently argued that such value extraction—evidenced by agency costs, such as employees pilfering company assets, and fraud scenarios like dishonest used car dealers exploiting gullible clients—is contingent on the presence of asymmetric information about the goods and services being exchanged, including the sale of one’s labor for wages. In any unfettered trade environment—excluding involuntary exchanges such as slavery or robbery—all transactions are presumed to be mutually advantageous, ex-ante, barring unforeseen circumstances. This occurs because a rational individual would only engage in a trade if they subjectively perceive it as beneficial beforehand. Symmetrical information ensures that the benefits anticipated before the transaction align with the actual utility realized after the exchange.
In any labor market, by definition, workers inherently possess deeper insights into the quality of their labor than employers do, while both parties are equally informed about the wages received as compensation. Consequently, when information asymmetry exists, it inevitably favors the employee. This scenario suggests that any potential deceit is more likely to originate from the always better-informed employee rather than the less well-informed employer, aligning precisely with the agency theory principles proposed by Jensen and Meckling. These principles, notably the issuance of stock options to executives to align their interests with those of shareholders, are designed to mitigate—and indeed effectively counter—unearned wealth extraction. Such extraction often involves better-informed agents exploiting their superior knowledge to pilfer assets from less informed owners, a dynamic also recognized in public choice theory as the extraction of 'economic rents'. This concept was notably explored by Gordon Tullock and James Buchanan Jr., the latter of whom was awarded the Nobel Prize in 1986 for his work in this field. This approach stands in stark contrast to Marx's theories, which, though well-intentioned, may be seen as unrealistic and utopian, having consistently failed due to fundamental errors.
Karl Marx's theories exhibit several errors, which are simply bugs—akin to a 'version 1.0' in the realm of economic thought, with Arrow-Debreu mathematical economics representing a more refined 'version 2.0', analogous to the technological leap from Blackberry to iPhone. As demonstrated in a related working paper, the U = S + E equality of money integrates seamlessly into the Arrow-Debreu framework of mathematical economics.
The consistent failures to realize socialism or communism in practice can be traced back to shortcomings in Marx's theories, which stem from his limited grasp of mathematical principles and a fundamental misunderstanding of key concepts in mathematical economics and game theory. Despite these limitations, it is noteworthy that Marx was among the first to conceptualize money as a unit of measure, a pioneering effort substantiated in the references section of this paper, where Marx is cited prior to Jevons.
Indeed, Marx’s early identification of money’s key function as a unit of account, well before Arrow and Debreu, earns him deep respect. However, deficiencies in his early theory can lead to significant misinterpretations in his economic analysis, challenging the validity of his arguments. A more detailed examination of these issues would exceed the scope of this paper.
Bitcoin as U=S+E: An Evaluation
Bitcoin's market capitalization, now exceeding one trillion dollars, underscores its significant role as a unit of account. This status, alongside other cryptocurrencies, offers distinct advantages over traditional stores of value like gold, primarily due to the predictability of its future money supply. Economists universally recognize that volatility in the spendable money supply is detrimental, a sentiment reflected by central banks' efforts to combat inflation and avoid deflation to stabilize prices.
In the Forex market, where currencies are typically priced in dollars, Bitcoin sets the standard against which all other cryptocurrencies are evaluated, solidifying its essential role as a unit of account. This aligns with the principles of the Arrow-Debreu model as discussed in "A Walrasian Theory of Money and Barter." This paper supports the notion that fiat currencies are susceptible to devaluation due to rational utility maximization behavior by politicians who may expand the M2 money supply to avoid tax increases, thus making fiat currencies unreliable units of measure. Even hypothetically, if someone as wise as King Solomon managed the Federal Reserve, the outcome would likely remain influenced by rent-seeking behavior by politicians, leading to an unstable quantity of M2 funds in the US.
Bitcoin's market value is significantly derived from its dual functionality: as a unit of account ('U') and a store of value ('S'), fulfilling its 'U=S' role. This dual effectiveness is underscored by the significant number of bitcoins irretrievably lost4 each year, which demonstrates the system's high level of security and the near impossibility of retrieving bitcoins without the correct private key. The irreversible nature of Bitcoin transactions enhances its resilience to theft, bolstering its reputation as both a dependable store of value and an accurate unit of account with a stable supply.
However, in its role as a medium of exchange, the 'E' in the U=S+E equation, Bitcoin faces notable challenges. Transactions can be costly and time-consuming, reducing its utility for everyday use. Furthermore, vulnerabilities such as the risk of a 51% attack—where a single entity could control the majority of mining power—and potential confiscation by authorities like the FBI, highlight fundamental security concerns that need addressing. These issues affect Bitcoin's efficiency and trustworthiness as a transactional currency and raise concerns about its security infrastructure's vulnerability to both internal and external threats.
A fundamental challenge in using Bitcoin as a medium of exchange is the presence of asymmetric information during payment processing. This lack of comprehensive knowledge about all pending payments by each peer-to-peer node can lead to significant vulnerabilities, such as the risk of double-spending, a critical issue highlighted in the 2008 Bitcoin white paper5. The risks associated with fraud, particularly double spending facilitated by asymmetric information, challenge the integrity of transaction processes and pose a persistent threat to the trust and stability necessary for the widespread adoption of cryptocurrencies as reliable transactional mediums.
Comparing Transaction Processing Methods: Traditional Banking vs. Cryptocurrencies
In contrast to cryptocurrencies, traditional banks effectively manage the risk of fraud, such as that facilitated by asymmetric information, by employing batch processing of transactions during nighttime hours. This method allows all bank branches, functioning similarly to peer-to-peer nodes in cryptocurrency networks, to fully synchronize their data. Payment instructions, often in the form of paper checks, are collected throughout the day and held unchanged overnight. This pause in accepting new payments facilitates collective synchronization, ensuring complete information symmetry regarding current balances and pending payments.
This approach ensures absolute certainty that all accounts are balanced and verified for sufficient funds before any debits or credits are permanently recorded in the bank’s general ledger. By allowing all branches to maintain an identical and accurate financial ledger and conducting this batch processing during off-peak hours, the financial system’s reliability and security are upheld. This method offers a significant advantage over the real-time transaction methods used in cryptocurrencies, which can be more vulnerable to discrepancies and fraud.
Satoshi Nakamoto’s design for Bitcoin notably eschews the centuries-old banking practice of synchronization through batch processing to achieve full information symmetry during payment processing. From a programmer’s perspective, the "proof-of-work" mechanism may appear ingenious, but when evaluated through the lens of mathematical game theory, this attempt to needlessly reinvent the wheel, can only be described as "not even wrong"—a term coined by physicist Wolfgang Pauli to describe fundamentally flawed arguments. This critique suggests that a robust payment system architecture requires a deep understanding of game theory, as cryptocurrency users aim to achieve a real-world Nash equilibrium.
Game Theory and Bitcoin: Balancing Symmetric Information for Stability and Trust
In game theory, a Nash equilibrium occurs when no participant gains by changing strategies, assuming all others' strategies remain constant. Ideally, honesty should emerge as the dominant strategy in payment processing to maintain the currency's utility as an effective medium of exchange. However, Bitcoin’s design lacks mechanisms to enforce symmetric information during transactions, inadvertently creating conditions that weaken incentives for honesty. This deficiency exposes the system to potential fraud and destabilization. By failing to ensure that all participants have equal knowledge about pending payments, Bitcoin risks compromising both its stability and the trustworthiness of transactions within its network.
Despite its challenges as a medium of exchange, Bitcoin stands out as a reliable store of value, largely due to the symmetric information maintained in the blockchain regarding the authenticity of transactions. Any attempt to propagate a fraudulent blockchain within the Bitcoin network is immediately detectable, which effectively exposes and thwarts fraud attempts. The integrity of the network is upheld by a protocol requiring all nodes to accept only blocks that match the existing blockchain’s hash values. This design promotes honesty and deters dishonest behavior by making such actions economically infeasible, thereby ensuring Bitcoin's reliability as a store of value by making fraud both visible and costly.
Distributing a fraudulent copy of the blockchain is as futile as trying to sell week-old rotten fish or passing a counterfeit gold coin to a professional jeweler—both attempts are bound to fail because the quality of the goods can be independently verified. In game theory, trust is not merely assumed but must be empirically verified since rational actors will exploit any available opportunities for gain, including fraud. The independent verification of authenticity through digital signatures and cryptographic hashes maintains symmetric information across the network, rendering fraud unprofitable. This leads to a Nash equilibrium within the cryptocurrency peer-to-peer network, where any deviations from honesty do not benefit the perpetrator, fulfilling the conditions for a Nash equilibrium in game theory.
Symmetric information is crucial for enhancing security and trust within systems, reinforcing Bitcoin’s role as a reliable store of value. In mathematical game theory and economics, symmetric information allows players to fully understand each other's strategies and payoffs, essential for determining optimal strategies. This principle is critical for maintaining a Nash equilibrium where honesty prevails as the dominant strategy. George Akerlof highlighted the lack of such symmetry leading to market failures in his analysis of the ‘lemons’ market. Unlike traditional banking systems that ensure information symmetry through periodic synchronization, Bitcoin’s architecture lacks such mathematical rigor. This absence of standardized synchronization could compromise the network's integrity and stability, potentially destabilizing Bitcoin’s ecosystem and eroding user trust.
Challenges and Considerations in Bitcoin's Mining Process: Sustainability, Efficiency, and Alternatives
Bitcoin's design demands continuous, ad-hoc transaction processing, leading to an energy-intensive and costly mining process. This reliance on mining introduces significant inefficiencies, making the system less sustainable and economically burdensome over time. Alternatives like proof of stake reduce energy requirements and associated costs but introduce their own challenges, including security concerns and potential centralization. These alternatives must be carefully evaluated to ensure they offer a viable and improved solution to the current system's limitations.
Proof of stake systems have struggled to gain widespread adoption due to heightened counterparty risks. In these systems, the potential for theft by better-informed payment processors is not counterbalanced by the real-world costs that miners incur in proof of work systems. This absence of economic disincentives for dishonest behavior creates an imbalance in risk and reward, undermining confidence in the security and reliability of these alternative consensus mechanisms. Consequently, stakeholders remain cautious, as these systems do not adequately mitigate potential abuses, making them less attractive compared to more established methods.
While proof of work is highly trustworthy compared to other payment methodologies due to asymmetric information between bank-clients and payment processors, the substantial energy requirements and associated costs of Bitcoin mining are considerable. These costs, borne by end-users, represent a direct wealth transfer from Bitcoin users—engaging in its 'E' role as a medium of exchange—to miners. The environmental impact is stark, as Bitcoin mining's electricity consumption last year matched that of Argentina. These factors underline the system's limitations in scalability and practicality, posing challenges to its long-term sustainability and viability as a mainstream financial solution.
Bitcoin’s reliance on mining presents a stark contrast to the more structured and efficient systems of conventional banking. These inefficiencies challenge environmental sustainability and limit scalability and practicality, posing significant hurdles to Bitcoin's long-term viability in mainstream financial ecosystems. The energy-intensive nature of mining, coupled with substantial operational costs, raises concerns about its ability to integrate sustainably into global financial systems as a viable alternative to traditional banking methods.
TNT: The Next Evolution in Cryptocurrency
Transparent Network Technology (TNT) adopts the well-established batch processing method traditionally used by banks, specifically designed to minimize asymmetric information. This strategic alignment with proven financial systems enhances both efficiency and security, effectively addressing fundamental vulnerabilities observed in decentralized cryptocurrencies like Bitcoin. By leveraging these established methods, TNT positions itself as a superior alternative within the cryptocurrency market, offering a more reliable and secure solution that optimizes transaction processes and significantly reduces risks associated with less structured systems.
Once implemented, TNT-bank will significantly streamline cryptocurrency transactions by adopting a scheduling system akin to traditional banking practices. For example, it could process payments during odd minutes—similar to how banks handle transactions during business hours—and pause transactions during even minutes, mimicking bank closing hours. This periodic pause allows all peer-to-peer nodes sufficient time to achieve consensus on current balances and pending payments. By ensuring that all transactions are visible and verifiable across the network, this approach effectively prevents double-spending and enhances the overall security and reliability of the system.
Moreover, TNT-banks substantially enhance security by requiring both the sender and the recipient to approve the resulting debit-credit pairs before they are accepted and permanently recorded in the database. Payments lacking such dual approval, evidenced by digital signatures from both the sender authorizing the debit and the recipient authorizing the credit, are deemed invalid. This mechanism mirrors how unsigned Bitcoin transactions are treated, ensuring they do not affect account balances. The dual-signature/dual-approval requirement not only secures transactions but also legally formalizes fund transfers within TNT-bank accounts. These transactions, executed and digitally signed in a non-repudiable manner by both parties involved, offer legal assurances comparable to those in traditional finance. The legal recognition of email messages as binding agreements further underscores the robustness of non-repudiable digital signatures.
Within the TNT-bank framework, digital signatures are fortified by rigorous mathematical proofs to ensure they are quantum-proof, enhancing security against sophisticated cryptographic threats. This advanced security framework employs quantum-proof cryptographic hash functions and patented unbreakable homomorphic encryption technologies. While a detailed discussion of these technologies exceeds the scope of this introduction, each plays a vital role in bolstering the robustness of TNT-bank. TNT-bank is not merely a theoretical improvement; it represents a practical, secure, and legally sound solution poised for widespread adoption.
The dual-approval via dual-signature feature, facilitated by batch processing at TNT-bank, effectively transforms bank funds into fractional ownership certificates. These transfers, akin to the sale of a condo or shares of IBM, are each legally enforceable and mutually authorized by both parties involved. This mechanism not only secures transactions against fraud but also firmly establishes their legality, positioning TNT-bank as a pioneering force in the cryptocurrency space. By aligning its operations with the trusted and regulated practices of traditional financial transactions, TNT-bank ensures that these contracts are legally binding.
Another significant feature of TNT-banks is their ability to split keys. For instance, if you entrust your TNT-bank account to JP Morgan as an AML custodian, you can keep your spending key private while handing over your dual-approval payment acceptance key to JP Morgan. This allows JP Morgan to comply fully with all AML regulations by controlling any transfers between what effectively become JP Morgan-custodied, TNT-bank peer-to-peer maintained accounts. As long as JP Morgan remains the designated custodian of funds, they can ensure AML compliance, tailoring their oversight based on how the TNT-bank is structured and used.
TNT-banks integrate smart contracts into their operational framework, making them a critical part of the real-world legal system. Like an email exchange that forms a contract, smart contracts in TNT become legally binding when signed by both parties involved in the transaction. This dual-signature requirement ensures that TNT's smart contracts are not only theoretically enforceable but are also recognized under the legal frameworks of the United States or any other jurisdiction where digitally signed proof of transfer of ownership constitutes a legally binding transfer of title.
A key attribute of TNT-bank that deserves particular attention is the throughput and speed of transactions, significantly enhanced through batch processing. This method not only optimizes transaction capabilities but also demands considerably less computational power compared to platforms like Ethereum or Bitcoin. By minimizing the need for continuous, intensive computation, TNT-bank provides a more efficient and scalable solution. This efficiency sets a new standard in the cryptocurrency market for both speed and energy conservation, paving the way for broader adoption and improved daily operational performance.
Thanks to TNT-bank's streamlined verification process, which only requires checking digital signatures, it can process real-time payments at speeds that match or even surpass those of established systems like Visa and Mastercard. This high level of efficiency not only positions TNT as a viable digital currency but also cements its role as a legitimate payment system. Leveraging the mathematical principles of Nash equilibrium from game theory, TNT distinguishes itself from less efficient technologies, enhancing both security and functionality. The excessive energy consumption observed in other cryptocurrencies, often due to poorly informed design choices, underscores significant development oversights.
In conclusion, we wish to emphasize the obvious: although the mathematics underlying our discussion are straightforward, their application often fails due to theory-induced blindness6. This cognitive bias, more accurately described as assumption-induced blindness, occurs when assumption-dependent axioms are mistaken for established facts, becoming dogmatic. Such blindness often originates from well-meaning but inadequately educated programmers who, without a background in finance or mathematical economics, may incorrectly assume that the primary challenge in cryptocurrency systems is preventing double spending. In reality, the crux of processing payments is managing asymmetric information, a dilemma extensively studied in game theory. Banks have historically addressed this issue by pausing new payments to process existing ones with equal knowledge.
We explore these issues in depth on our website, tnt.money. Visitors can delve into our innovative payment processing system and discover why such promising solutions have remained underdeveloped, despite significant investments in cryptocurrency payment technologies. These efforts have been consistently hindered by the most nefarious cognitive bias of all: assumption-induced blindness (AIB).
P.S. For those interested in more complex mathematics, we at TNT Bank are pleased to oblige, as this is directly relevant to the field of mathematical economics. The dual part of this paper (about money) presents a brief discussion of Einstein’s formula and its relation to money. This paper goes into great detail, fully and precisely illustrating how the U = S + E definition of money aligns with the Arrow-Debreu model. The paper, among others, is available for free at tnt.money.
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2https://www.stlouisfed.org/education/economic-lowdown-podcast-series/episode-9-functions-of-money
4https://fortune.com/crypto/2024/04/24/bitcoin-wallets-waking-up-lost-coins-satoshi/
5https://bitcoin.org/bitcoin.pdf
6https://libquotes.com/daniel-kahneman/quote/lbk4t1w
Consider the failure of the FTX exchange—anyone holding Bitcoins in their private wallets was unaffected, always having the option to convert their Bitcoins to fiat through other exchanges, such as Binance or Coinbase. Contrast this with the recent collapses of First Republic Bank and Silicon Valley Bank. Here, but for the grace of Janet Yellen, anyone holding over $250K in an account faced the risk of losing their money.