Most, if not all, fiat currencies are issued and “backed” by the government that issues them. This type of enforcement based backing is called de jure law. This just means that something is enforced by a legal system with courts and law enforcement that those courts operate. Bitcoin is unique because it is enforced by de facto law rather than de jure law.
What Is De Jure Law?
De Jure law means “of law”, “in law”, or “as a matter of law”. All De Jure laws are created and enforced by governments, courts, and the law enforcement agencies that those governments operate. They are the most common way for societies to organize themselves around the globe. If you steal someone else’s property, you will most likely face some sort of criminal prosecution. If you drive above the speed limit, the police will pull you over and issue you a ticket that is enforced by de jure law. If you don’t pay the ticket, you may face additional criminal penalties that are, again, enforced by de jure law. Any law that is created and enforced by a government is de jure law.
Changes to de jure law are also slow and bogged down with all sorts of bureaucracy, campaigning, elections, and voting. What’s even worse about such a system is that de jure laws is that fraud is still very common within governments all around the world. Simply put, de jure law is subject to all sorts of corruption and if you don’t like the way the system works, you can’t use fork off and start your own.
Bitcoin In Not Enforced By De Jure Law
Most, if not all, fiat currencies are issued by central banks that are granted a legal monopoly by the local government. For instance, the US dollar is issued by the Federal Reserve System which has been granted a legal monopoly by the Federal Reserve Act which was put into place back in 1913. Almost every country on earth has a central bank with the same sort of de jure laws that enforce the monopoly over the money supply.
No other entity or business is able to issue money in the United States of America. In fact, if you try to issue your own money or currency that attempts to compete with the US Dollar, you will be put out of business and potentially be imprisoned. This was the reality for Bernard von NotHaus when he attempted to create a gold back dollar called American Liberty Dollars (ALD) back in May of 2013.
What separates Bitcoin from centrally issued currencies like ALD that were intended to compete with the US dollar is that Bitcoin is not centrally controlled. Anything that can be centrally controlled can be centrally obstructed and that is exactly what happened to Liberty Reserve. The distributed nature of the bitcoin blockchain means that there is no central point of failure to seize or shut down.
Bitcoin does not have the support of a government or military to enforce its use across any part of the world. Anyone who uses bitcoin does so of their own free will and that is actually one of its most amazing properties.
If Bitcoin isn’t backed by any de jure laws, then what kind of laws back it? The answer is de facto law.
What Is De Facto Law?
De Facto law is any law or rule that isn’t created by any political or governing body. It means “in fact” or “in reality” and refers to laws or rules that exist simply due to reality. Some examples of de facto law are all of physics such as the law or gravity, the laws of thermodynamics, and the laws of supply and demand. These are not laws that are created and enforced by governments. They are laws of science that exist in reality and we can’t do anything to change them. The just…are.
Another important set of laws are the laws of math. 10 + 10 = 20 because that’s just the way that it is. If you have 10 coins in a pile and you add them to another pile of 10 coins, you now have 20 coins. There’s nothing that anyone can do to change that. Math is absolute and it’s this exact type of de facto law what actually enforces the rules that govern bitcoin.
Bitcoin is Backed By De Facto Law
We just covered how Bitcoin is not backed by any sort of government laws or statues. Instead, it is backed by de facto law, which means “matter of fact”, “ or “of fact”. Instead of relying on governments to issue, distribute, and validate transactions, Bitcoin uses the de facto laws of math to maintain the integrity of its monetary policy. Bitcoin is literally just math.
All Bitcoin private keys, addresses, signatures, hashing algorithms, nodes, and just about everything else is all enforced by the laws of math. It doesn’t need a bank or government to issue it, maintain the integrity of the network, or authenticate the transactions. Bitcoin simply IS. What’s even better about Bitcoin is that it is completely open-source so you don’t need to trust that Bitcoin is solvent. Anyone can mathematically verify that the blockchain is 100.00000000% solvent all the way out to 8 decimal places. You couldn’t even do that with all of the de jure law in the world.
Changes to the Bitcoin protocol are based on the consensus of the network of node operators. Anyone can freely choose to join or leave the protocol whenever they choose to. Nobody is forced by any sort of de jure law to mine bitcoin, run a node or use bitcoin. If the bitcoin network decides that the changes are not beneficial for the entire network, they won’t run the code. If the network does decide that the code is beneficial, then they will choose to run it. It’s that simple. It’s a purely consensual monetary policy that you can opt-into and more importantly, you can opt-out of whenever you choose.
Use Bitcoin
De jure law is the standard form of governance around the world and the issuance of money is no different. Every fiat currency in the world is issued by a central bank or government that has a de jure monopoly over the creation of money but Bitcoin is not backed by any such laws because it doesn’t need to be.
Da facto laws are becoming more and more common as the internet continues to grow and bring people together based on informed consent. We use apps and open-source software to organize solutions to more and more problems around the world and Bitcoin is going to prove to be one of the most influential of these programs. Bitcoin is backed by de facto law rather than de jure law and that is just one of the many reasons why more and more people are choosing to use bitcoin.