Solving the Problem(s) of Money

By Nate Novosel

Money is an interesting concept. If you’re reading this, you probably know the three fundamentals of currency:

• Store of Value – It holds the value of your work and output in a credit system that allows you to redeem that value for future goods and services provided by others.
• Medium of Exchange – It acts as a means to trade with another person where the two of you don’t provide things that the other directly needs in a comparable amount.
• Unit of Account – It allows you to quantify multiple goods with the same accounting system so that you can calculate how much you will get for your output and how much you need for someone else’s.

But let’s go beyond the theory and into the pragmatic applications of these ideas. First, you need things to survive: food, water, shelter, etc. Second, you are more effective at some activities required to live than others. Third, other people in society are more willing and able to do those activities for you. Fourth, you are neither friends nor family with those other people, so you don’t know whether you can trust the other person to reciprocate in a fair way the things you need for the things they need.

Enter money. I can get a bucket of water for myself from the well, or I can get a bucket of water for hundreds of people from the well, and they credit me for it. How do we measure that credit? Currency (e.g., dollars and cents). I provide the good or service, and they credit me for it. When I need a good or service from someone else because it’s inconvenient or impossible for me to do it (for) myself, I give that credit to someone else by handing them that money. And thus, we have a more functioning society.

So, if money is the solution to the problem of friction regarding the exchange of goods and services, what new problem(s) does money introduce? Well, it turns out…plenty.

First, what counts as money? People have used gold, silver, tobacco, seashells, and rocks (among other things) as money over the years. Why? Because of the second problem: if money counts as credit for work done and gets other people to do work for you, people will always try to cheat the system and get other people to do things without having to do anything themselves. So the thing you use as money has to be scarce and difficult to counterfeit. Which leads to the third problem: who governs the money? Throughout modern history, it has become a governmental function to create and honor money—even though for years prior it was either banks or businesses or individuals who were willing to accept the payment that dictated what was money. And whoever controls the money can control the supply, creating more and decreasing the value of existing units that people currently hold. That’s known as inflation. Finally, we have that last problem involving holding it: money can be lost, stolen, damaged, destroyed, or swindled, thus making it difficult to hold onto the value of your hard work.

So, we’ve got five problems:

• Money has to be scarce and difficult to counterfeit.
• People want as much money for as little work as possible (and are willing to steal or swindle for it).
• Money needs to be recognized and accepted as currency to be useful.
• The system that controls the money can do whatever it wants with it.
• Money has security risks.

Historically, those problems have been solved in a few ways:

• Find or create something that is as difficult to create or counterfeit as possible. Before modern currency, it was to find a limited, un-reproducable substance like gold. In modern currency, it was to create a limited amount of difficult-and-illegal-to-counterfeit coins and bills. In economics, this is known as “hard” money, with the “hardest” money winning.
• The difficult-to-get-illicitly solution solves for much of the “get it without earning it” problem, but since people can still steal it, banks protected earned value by keeping the money safe in vaults with security.
• Local communities agreed to bank paper credit systems, but then governments created currencies that most people use today and make it legally required to accept it for all debts.
• Governments have created independent central banks that sets things like federal funds rates and the growth rate of the money supply.
• To avoid loss, financial institutions hold money for people and simply exchange numbers on a ledger instead of having currency being held and exchanged by individuals.

So, if those were the solutions that have worked better and better as they have evolved—after all, there is a lower percentage of people in poverty than ever in human history—then what are the problems today? Well, we still have plenty of problems left to solve:

• Modern governments have gone from simply protecting people from harm to collecting money from every citizen and transferring it to other people under the justification of morality, protection, and compassion. What you incentivize, you get more of, and so more and more people find ways to qualify for that money with as little work in exchange as possible.
• In a democratic system, politicians win by promising as much money to their citizens as possible while taking as little as possible from them, resulting in huge budget deficits that require more money-printing that leads to inflation, reducing the value of savers’ dollars.
• Financial institutions are required by law to give the money that savers store with them to less-qualified borrowers, thus increasing the risk of catastrophic financial failures like the 2008 financial crisis when they found creative ways to manage and hide that risk.
• In the internet age where communications are nearly free on a per-message basis, armies of scammers are swindling people out of their money with fake financial transactions and even fraudulent dating profiles.
• Despite innovations with digital finance, money is still very, very slow and restrictive. To avoid the risk of fraudulent activity, financial transactions take three days to process (typically), often require approvals from multiple parties to conduct the transaction, and even have transaction amount limits. It’s done in the name of safety, but it sacrifices speed and restricts freedom.
• The financial system is expensive to run. These costs are very well hidden. Taxes? Withdrawn from your paycheck before you even receive it. Transaction fees? Paid by the merchant so the customer thinks their credit card is free to use. The financial services industry? It’s one of the most profitable things on Earth to be a financial intermediary between parties.

So, what do we do about this problem? Enter Bitcoin.

Bitcoin was an elegant solution to the problem of money. It solved the above problems in creative ways:

• It created a limited supply of the currency that inflated at a predictable rate and could only be obtained through solving complex calculations, known as proof of work or “mining” (after gold mining, which was the previous means of diluting the value of precious metal). This solves the government inflation problem and the “money for nothing” problem.
• It created a public accounting system to eliminate counterfeiting, keep control of the system out of any one party’s hands to prevent abuse, and instill trust in system.
• It solved for the security concerns through cryptography and a network of miners with shared incentives for the system to work.
• The confirmation process reduced the probability that a transaction was a double-spend or a block was fraudulent in hours instead of days like the traditional financial system.
• It solved the cost problem by making the infrastructure a community of participants running the software (known as nodes) who earn money through mining and processing transactions (for a flat fee that is often/usually lower than the 3-6% of a transaction processor).
• The monetary system is out of the hands of the government or financial services institutions to control. The government can’t even necessarily prove that you possess any of it (i.e., you may have lost your private keys), and the financial services institutions can’t lend it out and risk your savings if they become insolvent.

Sounds amazing! So, the problem(s) of money is (are) solved, right?

Right?

Not quite. First of all, the scamming issue is still prevalent. Not only has Bitcoin led to a slew of get-rich-quick crypto schemes (known as “rug pulls”), but now people are sending crypto instead of checks and gift cards to criminals and accidentally giving away their seed phrases to sites spoofing their hot wallets (the name for online cryptocurrency wallets). Unfortunately, we’re probably a long way away from ever solving that. As long as people have freedom, they can give their money to other people (and other people can pretend to be someone else and con them into giving them money).

But that one aside, there are challenges that do have permanent, technical solutions. The first is known as the Blockchain trilemma: you can have two out of these three qualities in your cryptocurrency: scalability, decentralization, and security. In other words, you can be decentralized and at scale but be insecure; you can be secure and decentralized and not scalable; you can be secure and at scale but not decentralized. Why is this? Because if you have many folks participate, bad actors have the opportunity to exploit any weaknesses in the system. If you are secure and scalable, it is likely because of control by one or a few parties. If you are secure and decentralized, you are Bitcoin—Bitcoin can only handle 7 transactions per second.

The second is that the Nakamoto consensus still takes hours to confirm. It’s faster than banks, but it’s much slower than the three-second processing time that consumers see when they check out at the grocery store. If you want to actually be used as money and not just numbers on a screen you keep behind cryptography until its value goes up and you want to sell it for fiat currency later…you need it to be fast.

The third is ongoing improvement. There are constant innovations in financial services and criminal activities such as hacking. As such, the system needs to improve over time, but Bitcoin has become slow to mature since so much money is on the line.

The fourth is that crypto is very difficult to use compared to cash and banks. While the benefit of cryptocurrency is that someone can send money anywhere in the world quickly as long as they have a computer and internet access, it has issues with on-ramps (i.e., ways to convert fiat into cryptocurrency), sending money via long strings of random characters vs. handing it to a person or writing their name on a check, and if you send that money, it’s gone (vs. banks where they may be able to reverse the transaction). It also requires complicated systems—e.g., some forms of crypto require knowledge of terms like X-Chain or P-Chain—and you might type the wrong url and accidentally go to a fake wallet and lose all your funds when you log in with your seed phrase. There are just so many risks, not even counting the fact that most coins and tokens have no use in the real world and are practically a form of gambling to see which meme coin is the next to soar in price.

Finally, Bitcoin and crypto just don’t have real-world acceptance yet and don’t yet solve the problems with money that drive its adoption as a medium of exchange. That is why Bitcoin, for its surging price and popularity, is simply something people buy and save, selling it whenever they want to get off the train and spend their money in fiat. Sure, some proclaim they’re “never selling”—presumably because they can borrow against it or they hope one day it will be accepted—but most see it as a curious investment vehicle and nothing more. As such, if for any reason there would be a loss in confidence in it or something else gained a use case as money, it would become a Ponzi scheme in effect as millions bailed on it at once and the price crashed. Arguably, that has happened in some form to the majority of crypto projects.

So, how do we solve those problems? Enter eCash.

eCash is a fork of a fork of Bitcoin. While eCash has the same genesis block of Bitcoin, its split began with a disagreement (known as the “block size war”) over one of the elements of the blockchain trilemma: scale. One side wanted to keep the block size small so that it would maximize decentralization; the other side wanted to have larger blocks to enable mankind scale. The disagreement resulted in a fork, and then another disagreement around more stable funding for ongoing development to reach the desired scale, security, and capability resulted in a second fork. Needless to say, the disagreements led to a significant split in supporters and caused price dips amongst the coins.

What does this history have to do with money? The development team that led two splits from Bitcoin and Bitcoin Cash have had one singular concern that separates them (both figuratively and literally) from the other communities: they care about making good money. Bitcoin was overtaken by investors hoping the price goes up and believers in Bitcoin as a store of value above anything else. That’s only one element of money (though, to be fair, the “1 Bitcoin = 1 Bitcoin” chants show their interest in it becoming a global unit of account). The Bitcoin revolution as a medium of exchange came and went, as merchants such as Microsoft, Dell, and Steam accepted it for a few years and then stopped. The Bitcoin Cash community suffered from the same problem, believing that whatever maximized their returns was what was best for the coin over its original mission of becoming the world’s best money. So now, it seems, that out of the hundreds of crypto projects, only one is trying to maximize for its properties as a medium of exchange, which is arguably the most important part of money since it’s why seashells, rocks, and tobacco were being used in the first place. Yes, there are other projects who care about transaction speed and scale and others that care about privacy, security, and ease of use, but (arguably) only one coin is focusing its entire roadmap on just being good money.

So what money problems are the eCash developers solving for, and what problems remain? Thus far, they have addressed or are very close to addressing the following money problems:

• It already inherits the solutions that Bitcoin provided: it has a limited supply, a predictable inflation rate rewarded to participants through mining, public accounting, decentralized control, security, and lower cost.
• It takes many of those solutions to the next level: it funds mining, staking, and development to protect and improve the infrastructure; its transaction fees are much lower (a fraction of a cent); it is even more secure, preventing risks like 51% attacks (when bad actors take over 51% of mining to harm the blockchain) that exist.
• It enables speed and scale of transactions, with transactions currently being complete after one confirmation (around 10 minutes) with a new enhancement coming that will reduce that time to 2-3 seconds and increase the scale to millions of transactions per second.
• It aims to make sending someone money as fast, easy, and secure as handing it to them in person—even more so because you don’t have to be in person to transact, count a stack of bills, risk the money being lost or stolen, or make change.

Most of these capabilities exist today, with the speed and scale items being worked on at the time of writing. There are many, many more problems related to money that can be solved and the community is actively considering or working on:

• The “send anxiety” problem: Cash is great because you know who you’re giving the money to; bank accounts have similar benefits in that it’s in the person’s or company’s name you’re giving it to, and you can reverse the transactions if you make a mistake. Currently, crypto’s privacy and security features have the weakness of a typo or a fraudulent QR code sending your money forever to somewhere you didn’t intend…and you can never get it back.
• The on-ramp/off-ramp problem: Fiat is currently king. To get crypto, you have to either use an exchange to trade, convert your fiat to a stablecoin to swap, or use a money service that lets you buy crypto with cards. All of these options take a decent percentage of your money. Then, you still have to convert it back to a currency that merchants will actually accept when you want to spend it. It’s not a medium of exchange if it’s not a medium of exchange.
• The privacy problem: all of your transactions are recorded for eternity for everyone to see. While that’s good to ensure that money was not created out of thin air, it also allows any bad actor who knows your public key to see what you’ve been up to—including the government. Send money to an organization someone doesn’t like? They can use the ledger against you. Gamble, pay for adult content on the internet, or join a frolf (frisbee golf) league you don’t want anyone to know about? Well, it’s all out there for anyone to investigate.
• The chicken-or-egg problem of acceptance: People don’t accept crypto because no one uses it; no one uses it because no one accepts it. You have to break through that barrier to drive adoption of cryptocurrency as money.
• The investment problem: Money is supposed to be a liquid asset, meaning you can quickly spend it or convert it into something else. But because crypto is not a unit of account anywhere, its supply and demand create price changes, so people buy it as an investment and not as money to spend. Additionally, if you want to invest in something with your crypto, you—like with buying something—need to convert it into fiat and then buy the stock, bond, or other property.
• The long-term funding problem: Funding for Bitcoin and its forks come from mining, which will be reduced to 0 rewards eventually. The income for participants in the network will then solely come from transaction fees, and so it’s difficult to sustain participation with sub-cent transaction fees and low transaction activity. Many cryptocurrencies had ways to fund such as keeping a portion for themselves before launch or variable inflation rates, but unless the network is used, it will go from a funded venture to volunteer work.
• The awareness-understanding-usability trifecta: For crypto to be easily adopted by people, they must be aware of it, understand how it works, and then be able to use it easily. Some of the usability issues come from where it’s accepted, etc., but cryptocurrency has long private keys, dozen-or-more-word seed phrases, strings of characters in public keys instead of using people’s identities, complicated apps requiring technical expertise to participate in creating a node, mining, or staking, and multiple steps to get your wallet set up, to deposit money into the account, and to spend it. Meeting in the middle—i.e., getting people to become more familiar in general with it while making it easier and simpler to use—is key to widespread adoption.

You may be able to think of more, but this is a sample of what is still left to solve for money.

Unfortunately, there will be problems that are practically unsolvable. As long as money has value, people will try to take it. You see this today where scammers get unsuspecting people to withdrawal funds from their bank accounts and send gift cards halfway around the world. The government will continue to find ways to tax you so that it can raise money for its wealth redistribution efforts, wars, and regulations. The government will also continue to write laws that will restrain your freedom regarding your finances. All systems need money to function, so there will always be some form of fee required for the network. Most importantly, there will always be risks in life, so you’re trading the risk of the government inflating the currency for the risk that you forget your seed phrase or send your crypto to the wrong address. These kinds of issues will always exist, so all you can do is try to improve the system little by little every day in ways that you can control.

So, where does that leave us with the problem(s) of money? It leaves us with a slew of historical problems that have largely been solved, a few issues old and new that are still inhibiting our financial and transactional freedom, solutions underway to continue solving for existing problems, and some issues that may never be solved. Are you optimistic or pessimistic about our ability to solve this challenge? Let me end by sharing with you why I’m optimistic that we can solve most of the problem(s) with money today and in the future.

Like most people, I got involved in crypto for two reasons:

• I was frustrated with elements of the current state of money.
• Crypto markets were roaring, and I wanted to make some money along the way.

I’ve been involved for a few years now, and I’ve made and lost more net worth in an hour than some people will ever see in their lifetimes during the craziness that has been the crypto market from 2021-2025. You kind of become numb to the day-to-day when you know you’re in it for the long run. But that numbness (or, inversely, the stress) can make you forget why you’re here. Then, about a year ago, I came across a story of how a man in Africa—thousands of miles from me—was getting many members of his community to all adopt eCash so they could trade with it. All of the sudden, the true meaning, value, and purpose of eCash and cryptocurrency hit me so hard that I almost fell over. All of the things I cared about were not only on full display, but they were much, much worse for people who were not in my fortunate situation of living in a country that, in general, values freedom as a core tenet. In a flash, I saw a vision of what this is really about:

• People who live in countries with massive inflation and have to spend their money immediately (meaning they have to work until they die because they cannot store value) will finally be able to hold a currency that the government can’t render worthless.
• People who live in dangerous areas don’t have to hold physical currency that can be lost in a disaster or stolen by robbers; they can have the safety and security of money that no one but them can access.
• People who live on their day-to-day cash flow don’t have to wait three days or more for the money that they received via credit card purchases.
• People who own businesses don’t have to struggle with 3-6% transaction fees, cash register theft, daily bank transactions, and even heavy manual accounting.
• People who have opinions that don’t harm anyone but society deems unacceptable can’t be “un-personed” by having their bank balances frozen, their accounts cancelled, and their assets held to fight inflation completely seized.
• People who need to move thousands of miles away to earn a living don’t have to spend a large fraction of their pay to get money back to their families.
• People don’t have to hope that the money they’re receiving is legitimate and not counterfeit. (I experienced this in Bolivia when a currency exchange store wouldn’t take my money)
• People don’t have to be worried about being ripped off during the transaction. (there are many math and sleight-of-hand tricks out there)
• People don’t have to worry that a bank going out of business will pause withdrawals. (FDIC insurance can’t instantaneously send you your cash during a bank run)
• Most importantly, people can and will have the most convenient, frictionless experience exchanging goods and services that has ever existed in human history.

These problems of money are the important problems because they’re about helping people live their best lives and avoid financial harm. Yes, there might be problems that can never be solved like the trade-off between trusting a financial intermediary to hold (and give you back) your money vs. trusting yourself to remember your seed phrase, but so many of these problems can be solved with little downside.

This is why I’m in the crypto space…and there’s only one group of people who care as much as I do about any and all of this stuff: the eCash community. That’s why I’m here, and that’s why I try to participate in this movement to make the world’s best money. I can confidently say that if most of these problems were solved in my lifetime but I never made an additional cent from my cryptocurrency investments, I would be perfectly content with how it went. The good news is that it’s not one or the other—if crypto solves these problems, I’ll see some of the rewards from it. But I really, really hope we solve the problem(s) of money because it’ll do as much good for the world as nearly anything in human history, and for that reason, I hope for better money and a better future.