TNT White Paper
FINAL VERSION -- READY FOR PUBLICATION
The Evolution of Currency:
Bridging Traditional Banking and Cryptocurrency with TNT
by Joseph Mark Haykov; assisted by Phillip and Nathan Haykov as interns
July 29, 2024
Executive Summary
Transparent-Network-Technology (TNT) is an open-source distributed database system operating on multiple peer-to-peer nodes. Similar to Bitcoin, Ethereum, and other cryptocurrencies, TNT software maintains a double-entry ledger for a cryptocurrency bank, complete with smart contract capabilities. However, TNT elevates security to an unprecedented level by ensuring that all peer-to-peer nodes are always symmetrically informed at all times, eradicating any possibility of fraud, such as double spending, not only in theory but also in reality.
TNT integrates established banking practices with decentralized finance (DeFi), ensuring information symmetry through ubiquitous transparency in payment processing. Unlike other cryptocurrencies that process payments continuously, TNT uses a batch processing approach. For example, a TNT peer-to-peer ledger could accumulate payments during odd minutes and then pause to collectively process those payments during even minutes. This method, employed by banks for the past five centuries since the Italian Renaissance, ensures that all peer-to-peer nodes are symmetrically informed of current account balances and pending payments, completely eliminating the possibility of fraud such as double spending. Additionally, by using batch processing to handle updates, all peer-to-peer nodes have sufficient time to collect digital signatures from both the sending and receiving wallets.
Trust in the honesty of payment processors is not required in TNT because it is guaranteed by the "trust, but verify" strategy. In TNT, trust is unnecessary because all debits must be approved by a digital signature matching the debit approval public key of the issuing wallet, and all credits must be approved by a digital signature matching the credit (or dual) approval public key of the receiving wallet. Requiring dual signatures for all valid TNT banking transactions not only establishes these transactions as legally binding contracts but also facilitates AML compliance by refusing to accept dirty money into clean, AML-monitored TNT wallets.
To further ensure security, TNT mandates that all wallets sign the cryptographic hash of each update block with their dual approval private key. Hence, the TNT True-Node-Trust blockchain file format ensures a higher level of future fraud resistance than any competing blockchain. This requirement means that to distribute a fraudulent TNT blockchain, perpetrators would need to know the credit-approval private key of every single TNT wallet. Without these dual signatures, the block update will not be considered future fraud-free and will, therefore, be deemed invalid and excluded from any True-Node-Trust, future-fraud-free TNT bank ledger.
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, if for no other reason than their unique ability to mitigate counterparty risk, as exemplified by the risk of commercial bank failure. The relative reduction in counterparty risk when using Bitcoin to store purchasing power, rather than a competing alternative store of value such as the US dollar, stems from the fact that multiple custodians store copies of the Bitcoin bank's ledger in the form of the Bitcoin blockchain, including miners and the peer-to-peer nodes to which wallets connect to confirm receipt of Bitcoin payments.
Consider the consequences of the FTX exchange failure: anyone holding Bitcoins in their own Bitcoin wallets was unaffected and always had the option of converting their Bitcoins to fiat via other exchanges such as Binance or Coinbase. Contrast this with the recent failures of First Republic and Silicon Valley Banks. Here, but for the grace of Janet Yellen, any funds in excess of $250,000 would have been lost for good.
Bitcoin's market capitalization – well in excess of one trillion dollars – along with its adoption by major Wall Street firms, notably BlackRock and Fidelity—both having made direct investments in cryptocurrencies to support Bitcoin-backed ETFs—underscores the popularity of not only Bitcoin, but all cryptocurrencies in general. However, exposure to cryptocurrencies can present unforeseen challenges, such as BlackRock's Ethereum wallet being inundated with ‘dirty’ coins of ‘ill repute.’
In reality, cryptocurrencies face far more serious challenges than merely having one’s wallet flooded with unwanted (or ‘dirty’) coins. These challenges include 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, including 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 justifiably—referred to Bitcoin as a "turd" due to its suitability for such unconventional uses by computer-data kidnappers and other criminals. 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 Jevons, Walras, and Menger highlighted the key role of money as a medium of exchange, essential for overcoming the double coincidence of wants in direct barter systems. Circa 1954, a newer and more comprehensive mathematical economics framework was developed, known as the Arrow-Debreu general equilibrium model.
Despite the existence of multiple schools of economic thought1, the Arrow-Debreu model is foundational—it is the most widely accepted model of the economy for a good reason, which is outside the scope of this white paper. A general equilibrium model mirroring the one developed by Arrow and Debreu is what the Federal Reserve currently uses to set real-world interest rates—an evidence-based, and therefore independently verifiable claim, in whose accuracy we can be absolutely certain.
As we can clearly see, confusion about money ensues due to the fact that in the context of the Arrow-Debreu model of mathematical economics, there is no primary role of money at all, barring its necessity as a unit of account in which prices are measured in the context of the predicted theoretical Pareto-efficient general 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 conflated-with-facts viewpoint, any asset not primarily used as a medium of exchange is not considered money, fueling ongoing debates about the nature and function of money.
However, 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, and is often 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.
Yet 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 disagreements about what money is in economic theory (theories, after all, are simply educated guesses, and all schools of economic thought make their own guesses about money, some more accurate than others), there is universal agreement on the three essential functions that any form of money must perform in real-world economies. As outlined by the St. Louis Fed2, in all observed real-world economies, money is used as a medium of exchange, a unit of account, and a store of value. What the US Fed tells us in this podcast is that in every single real-world instance of every single past and present economy, money invariably serves all three core functions—not some, not most, but all. In all real-world use cases, money is always, inevitably, used as a unit of account, a store of value, and a medium of exchange. If you disagree with this, then you disagree not with us, but with evidence provided by the U.S. Fed.
To make this point perfectly clear: 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. The problem with the initial Jevons-Menger-Walras hypothesis is that there are not just one, but two ways in which it could turn out to be false. First, the primary function of money, as per the Arrow-Debreu framework, could, in fact, turn out to be a unit of account, and not a medium of exchange at all. Additionally, it could be the case that money simply has no primary function, and generally serves all three roles, as per the U.S. Fed. As we can see, these two theories (Jevons-Menger-Walras: money is a medium of exchange and Arrow-Debreu: money is a unit of account) merely point out different roles that money plays in an economy. There is no ‘primary’ role. The use value, or utility, that money provides in its different roles depends on the use case, just as the use value of anything depends on the use case.
For example, to an individual living in an apartment, its ‘primary’ role, or use value, is derived from providing living space. But to another individual using an apartment as an office, the use value is derived from amenities and location, such as proximity to restaurants, doctors, museums, and so on. Similarly, money, depending on how it is used, can act in different roles but does not have a ‘primary’ role. For example, one cannot claim that the ‘primary’ role of shoes is to protect your feet because the ‘primary’ role of Louboutin shoes is to make a fashion statement. The point here is that just as other goods, like shoes, in general, do not have a primary role, neither does money. Its utility depends on the specific use case and varies accordingly.
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. The following can be said about money outside any theories, as a purely evidence-based claim universally true of all money: all money serves three roles—that of a unit of account (U), a medium of exchange (E), and a store of value (S). Therefore, money is defined by its U = S + E roles. In this sense, all immediately spendable on-demand money, such as the current US M2 money supply or the supply of minted aureus coins in a bank-less system similar to that of ancient Rome, is conceptualized as a unit of account, or U. However, when any particular money unit – such as a $20 bill, being a subset of the total spendable money supply like M2 – is not being used to pay for things as a medium of exchange, it automatically turns into a store of value.
In other words, while a gold coin is sitting in your wallet or in a safe, it is being used as a store of value, not a medium of exchange. Similarly, funds sitting for years in a checking account, though classified as part of the actively circulating money supply (M2), are actually being used as a store of value. Moreover, the money that is being used as a medium of exchange (E) also performs the dual role of a unit of account (UE), in which the exchange rates of all goods and services, as defined by their relative prices, are measured. Additionally, as money is being used as a store of value (S), it simultaneously acts as a unit of account (US), in which the overall purchasing power of money is defined, as measured by absolute, rather than relative, price levels.
Now, we have come to a point where we propose our first hypothesis, a theory, an educated guess, an axiom, an assumption. However, we do so not only because it appears self-evidently true to us, but also because it is supported by plenty of empirical evidence and is not contradicted by any. Our theory is as follows: just as the use value of all other goods and services determines their exchange value, the same holds true for money. In other words, the better money functions as a unit of account, a medium of exchange, and a store of value, the higher its use value to those individuals who use it as a currency, and the higher its exchange value relative to other competing alternative forms of money. As money continues to evolve, so too does its ability to serve its roles 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 sued the SEC to force it to allow them to sell 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 strongly 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 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. Das Kapital is littered with false assumptions. 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 accurate identification of money’s key function as a unit of account, well before Arrow and Debreu, earns him deep respect, but is a fluke. Multiple clear and obvious deficiencies in his early and very "buggy" 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. Mathematical economics is rooted in the modeling of a representative agent in the economy as a rational utility maximizer, which as per public choice theory, means that politicians will seek to maximize their-own subjective utility, just like everyone else in the economy, resulting in the phenomenon identified by Gordon Tullock as rent-seeking. This aligns with the principles of the Arrow-Debreu model as discussed in "A Walrasian Theory of Money and Barter," which also underscores as an evidence based claim that fiat currencies are susceptible to devaluation due to rational utility maximization behavior by politicians who inevitably rationally choose to expand the M2 money supply, rather than vote for tax increases, thus making fiat currencies unreliable units of account and bad stores of value. 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. The effectiveness of Bitcoin in these two roles is illustrated by the number of irretrievably lost4 Bitcoins, demonstrating 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, owing to the nature of the proof-of-work consensus algorithm, are very costly and time-consuming, reducing Bitcoin’s utility for everyday use as a payment method. Furthermore, vulnerabilities include not only theoretical ones, such as the risk of a 51% attack—where a single entity could control the majority of mining power—but also real ones, such as the confiscation of Bitcoins obtained as ransom by the FBI. While such actions are fully justified, they 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. The lack of comprehensive knowledge of all pending payments by each peer-to-peer node has the potential to 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 an ongoing threat to the trust and stability necessary for the widespread adoption of cryptocurrencies as a reliable transaction medium.
Assumption-Induced Blindness in Action: The 2008 Bitcoin Paper
Upon even cursory examination by anyone familiar with either game theory or mathematical economics, it becomes clear that Satoshi Nakamoto, or whoever wrote the 2008 Bitcoin white paper, was—and probably still is—suffering from a severe case of theory-induced blindness6, which we refer to in this paper as assumption-induced blindness (AIB). The reason we introduce this new term is that theory-induced blindness is caused not by the theory itself, but by an inaccurate (false in reality, but true in theory) assumption implicit in an axiom underlying the theory.
The concept of assumption-induced blindness (AIB) is best illustrated by the following famous quote, attributed to Mark Twain7: “It’s not what you don’t know that gets you into trouble. It’s what you know for sure, that just ain’t so.”
In the case of AIB, “what you know for sure that just ain’t so” refers to a flawed implicit assumption, as described by Kahneman in 2011 in "Thinking, Fast and Slow." Additionally, assumption-induced blindness illustrates exactly how the Dunning-Kruger effect manifests itself in real-world behavior when the ‘blinded by wrong assumption’ individual not only considers themselves to be a top expert in a field but is also erroneously thought of as such by others and therefore has no one to correct them. In such a scenario, which is more common than one might think, the manifestation of AIB becomes indistinguishable from the Dunning-Kruger effect.
Satoshi Nakamoto is a perfect AIB case study—a skilled programmer, but one untrained in mathematical economics or game theory. This lack of knowledge led Nakamoto to misidentify the problem, which is not double spending. The real problem is asymmetric information, not the potential fraud that results from it. Double spending—fraudulent spending of counterfeit money—is merely a symptom of asymmetric information among peer to peer nodes. The real culprit that facilitates fraud, and the root problem that must be addressed, is asymmetric information itself.
In fact, according to Akerlof in "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," when trade is completely unfettered—as it is on the Internet, where involuntary exchange is impossible—fraud can only occur under conditions of information asymmetry. In the absence of involuntary exchange, such as robbery, theft, or extortion, fraud—like a crooked used car dealer passing off a broken car (a "lemon") as a working car to a gullible buyer—is only possible because the dealer knows more about the car than the buyer. Double spending refers to potential theft, such as spending counterfeit money, that can only occur when there is asymmetric information about pending payments between peer-to-peer network nodes.
Traditional banks fully eradicate the risk of fraud facilitated by asymmetric information about payments by batch processing transactions in bulk at night. This method guarantees that all bank branches, which are simply peer-to-peer nodes in bank networks, have more than sufficient time overnight to fully synchronize all data across all peer-to-peer nodes, thereby absolutely eliminating any possibility of fraud facilitated by asymmetric information. Double spending becomes absolutely impossible when all peer-to-peer nodes are fully and symmetrically informed about all payments collected during the day. 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.
Satoshi Nakamoto's design for Bitcoin notably eschews the centuries-old banking practice of synchronizing through batch processing to achieve complete information symmetry in payment processing. From a programmer's perspective, the proof-of-work mechanism may seem ingenious, but when evaluated through the lens of mathematical game theory, this attempt to unnecessarily reinvent the wheel can only be described as "not even wrong"—a term coined by physicist Wolfgang Pauli to describe fundamentally flawed arguments. What we are saying here, dear reader, is that a robust payment system architecture requires a deep understanding of game theory, as cryptocurrency users seek to achieve a real-world Nash equilibrium.
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. In the Bitcoin blockchain, a 51% attack requires substantial real-world resources, whereas in Ethereum, such an attack merely requires collusion between a handful of validators who hold enough coins to be considered for the role. These validators can also be influenced by entities like the FBI, as previously mentioned, as well as by entities far less benevolent than the FBI.
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 relatively more trustworthy compared to other payment methodologies due to the mitigation of asymmetric information between bank clients and payment processors by the costs of mining, 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 stands in stark contrast to the more structured and drastically more cost-effective systems used by conventional banks for centuries. These inefficiencies of mining 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 its significant real-world operational costs in terms of the needed electricity, cooling, and equipment, raises concerns about its ability to be sustainably integrated 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.
TNT significantly streamlines cryptocurrency transactions by adopting a scheduling system akin to traditional banking practices. This is accomplished through batch processing by all honest nodes collectively agreeing to not only accept new payment instructions exclusively during odd minutes—just as how banks only accept checks from clients wishing to deposit funds during business hours—but also not to accept any new payment instructions during even minutes, just as banks do not accept checks from clients at night. This, dear reader, is precisely the reason why TNT is called Transparent Network Technology. By collectively agreeing to pause transactions during even minutes, mimicking bank closing hours, we guarantee transparency. It is this periodic pause that allows all peer-to-peer TNT Bank nodes to achieve full transparency, or symmetric information, about not only current wallet balances but also all pending payments. By ensuring all pending transactions are visible and verifiable across the entire 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 provably and fully non-repudiable quantum-proof 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 (debit-credit) 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 credit-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 by simply refusing to accept credits of dirty money into AML-monitored ‘clean’ wallets, tailoring their oversight based on how the TNT-bank is structured and used.
TNT also integrates smart contracts into its 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.
Another attribute of TNT 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 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 and the current time—TNT can process real-time payments at speeds that match 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.
AIB is Infectious: An Evidence-Based Claim
Before concluding, we wish to emphasize the obvious: although the mathematics underlying our discussion are straightforward, their application often fails due to theory-induced blindness. This cognitive bias, more accurately described as assumption-induced blindness (AIB), 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).
The topic of AIB segues nicely into our final section, introducing the dual-definition of TNT, also known as the True-NO-Trust blockchain file format. The TNT blockchain file format ensures consistent coin balances in digital TNT bank accounts, independently verifiable for authenticity. It leverages cryptographic techniques to make sure the blockchain log file, in and of itself, is independently verifiable for authenticity, regardless of which decentralized payment system—proof-of-work, proof-of-stake, etc.—is used to produce the True-NO-Trust TNT blockchain file.
TNT: True-NO-Trust Blockchain File Format
As alluded to previously, both the 51% attack scenario in theory and the Bitcoin confiscation by the FBI in reality are examples of a type of "steal-back" fraud that, unlike double spending, occurs ex-post, or after multiple blocks have been added to the blockchain, long after the transaction has taken place and payment recipients feel their coins are safe in their wallets. This makes the entire system uniquely insecure and vulnerable to ex-post, or future theft. Unlike double-spending, or ex-ante fraud, which is unlikely because multiple nodes monitor block updates, the relative risk of a perpetrator being able to commit future (or ex-post) theft, as exemplified by the take-back theft of Bitcoins, can be modeled precisely based on the number of private keys one would need to gain access to in order to replace all of the digital signatures that secure the blockchain against fraud, namely the digital signatures of the hash value of the updated block. In other words, the more private keys the perpetrator of future theft must obtain to commit fraud, the more future-fraud-proof (FFP) the blockchain.
This is where TNT truly shines because we make the system as future fraud-proof as possible in the simplest way: we require every single wallet, bar none, to sign every single cryptographic hash of every single block update to the future-fraud free, true-no-trust TNT blockchain, making it provably immutable. Any take-back (or steal-back) attempt would necessitate the private key of every single wallet in the entire TNT bank—and if everyone agrees, barring involuntary exchange, which is impossible as you can simply unplug your peer-to-peer server, then is it really fraud?
Thus, for example, in Ethereum, if the FBI knows who the validators are, they can confiscate any Ethereum coins they wish by asking for their private keys. But you can’t steal back TNT one-true money coins because every single wallet on the TNT true-no-trust blockchain must sign the update hash in order for it to be considered valid and included in the FFP (future-fraud-proof) TNT blockchain. This shows that the TNT true-no-trust blockchain file format is inherently, in and of itself, relatively more future-fraud-proof (FFP) than any competing alternative blockchain file format, as it requires knowing the largest number of private keys knowable, either in theory or in reality, to commit future-fraud (ex-post) in a true-no-trust TNT blockchain.
TNT mandates the collection of digital signatures approving not only the debits but also the corresponding credits, not only precluding flooding BlackRock’s Ethereum wallet with coins of ill repute but also facilitating full AML compliance. And not only full AML compliance but one that is fully independently auditable, as we can always prove that the auditor is looking at the one-true, FFP version of the TNT blockchain.
Conclusion
This paper, though focused on TNT, also aims to underscore the pernicious nature of Assumption-Induced Blindness (AIB) and to highlight how it impacts our systems and decisions. AIB occurs when assumptions are mistaken for facts, leading to cognitive biases that result in flawed decisions and actions. By recognizing and addressing AIB, we can develop more effective systems, as illustrated by TNT.
Indeed, Assumption-Induced Blindness (AIB) is not only infectious but turns us all into fools. We have turned our FBI—our law enforcement agency—into thieves, forced to engage in spending counterfeit money to fight blackmailers. This is absolute idiocy. TNT facilitates AML compliance so that law enforcement agencies don't need to participate in committing fraud but rather have the means to actively prevent it.
It is clear that TNT is a groundbreaking advancement in the realm of digital currency, addressing issues that have plagued existing cryptocurrency technologies since their inception. By overcoming the blindness induced by Satoshi Nakamoto, TNT-bank provides a better DeFi solution. TNT offers a secure, efficient, and transparent alternative for modern financial transactions. With TNT, we can ensure the integrity of our financial systems is preserved, our law enforcement agencies remain honorable, and our digital currency transactions are guaranteed to be fraud-free.
TNT stands for True-NO-Trust owing to being future fraud-proof: our blockchain format ensures consistent coin balances in digital TNT bank accounts, independently verifiable for authenticity. By leveraging robust cryptographic techniques, TNT creates a blockchain that is verifiably secure, no matter which decentralized payment system—proof-of-work, proof-of-stake, and so on—is used. This groundbreaking approach provides a future-fraud-proof solution, promoting AML compliance and offering a sustainable, legally sound foundation for the future of digital currencies.
Finally, let us formally and precisely define what exactly we mean by Assumption-Induced Blindness (AIB) with absolute clarity. AIB occurs when assumptions are mistaken for facts, leading to cognitive biases that can result in flawed decisions and actions. It's a form of blindness caused by relying on incorrect or unverified assumptions, which can be particularly harmful when those assumptions are deeply embedded in systems or theories. This can lead to significant issues, such as the inappropriate actions of law enforcement agencies or the inefficiencies in current cryptocurrency technologies. By recognizing and addressing AIB, we can develop more effective, transparent, and secure systems, as illustrated by the TNT framework.
TNT not only stands as a pioneering force in cryptocurrency but also sets a new standard for integrity and efficiency in digital finance. By addressing and eliminating the pitfalls caused by AIB, TNT ensures that our financial systems remain secure, transparent, and just, paving the way for a brighter, more secure financial future. Indeed, TNT-bank money means a future of finance that is more fully certain to be fraud-free than it would be with any other competing digital currency system.
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1https://en.wikipedia.org/wiki/Schools_of_economic_thought
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
7https://quoteinvestigator.com/2018/11/18/know-trouble/