Bitcoin should be an ideal base money. However, its volatility is problematic and countries in a fiat currency crisis are still dollarising, e.g. Argentina and Lebanon. We theorise that this is due to a missing economic capability of Bitcoin. A financial system and economy based on Bitcoin (M0) also needs Bitcoin credit money (M1) to succeed: it needs a non-inflationary method to issue payment instruments redeemable in bitcoin at a future maturity date. An electronic version of the international framework for bills of exchange provides the core of our solution. We propose a peer-to-peer network that records all credited bitcoin amounts payable to, or receivable by, encrypted and hashed identities. Bitcredit full nodes mint these into non-custodial bitcoin credits for instant, private payment channels. At maturity, bitcredits redeem into bitcoin with only one transaction on bitcoin mainchain. Bitcredit needs no changes to Bitcoin Core. It is operational even if and when central banks and commercial banks fail in a monetary crisis. The build-up of bitcredit supply will create a credit superstructure representing a broad basket of goods and services valued at market prices which will stabilise Bitcoin’s purchasing power. 

Bitcredit Protocol is a free software which enables businesses to create e-bills. From these, Bitcredit full nodes mint a novel Bitcoin-denominated currency for instant payments which clear on the Bitcoin mainchain at maturity. This solution fixes Bitcoin's elasticity problem which so far made it just a speculative digital asset rather than a proper digital money. Bitcredit protocol creates a circular Bitcoin ecosystem with no need for fiat on/off ramps. 

A Three Stage Ecosystem

There are three stages and three user roles in the Bitcredit ecosystem: 

1. 1. Businesses: Large corporates and SMEs run Bitcredit "AEIOU" app (short for "atomic electronic I owe you") to draw, accept, endorse, and pay electronic bills of exchange ("e-bills"). 

   2. End users: End users run a Bitcredit-compatible, non-custodial Bitcoin wallet. The wallet app facilitates channels for instant, private payments at next to no cost. 

   3. MiMintnts: Bitcredit mints run the Bitcredit "Wildcat" software. Upon receipt of a qualifying e-bill, a mint creates bitcredits and opens payment channels. At maturity, it redeems final Bitcredit UTXOs into Bitcoin UTXOs.

Limited by Real Bills

A qualifying real e-bill must be verifiably drawn to pay for real goods present or services rendered. It must be denominated in bitcoin, have a reasonable maturity, and carry the verifiable signatures of three established businesses. 

Bitcredit minting is limited and guaranteed by verifiable eIOU capital. Mints compete by advertising their guarantee ratio and minting fees. The fees cover operating costs, e-bill default, and a profit. 

At maturity, the payment of an e-bill provides the input for clearing. End users’ final Bitcredit UTXO redeems one-to-one into a Bitcoin UTXO on mainchain 

Proof of Real Value

Bitcredit solves Satoshi's valuation problem. When a buyer and a seller agree on a price, they establish a market value. Bitcredit protocol makes this value verifiable: the unique name of the e-bill is the hash of the appended and encrypted invoice which documents the purchase transaction. 

This means that Bitcredits in circulation are economically backed by the broad basket of goods paid with e-bills which more or less reflects real world GDP. With increasing mint activity, a credit money superstructure builds up on top of Bitcoin which reflects the value of this basket. This will stabilise the purchasing power of Bitcoin, thus eliminating Bitcoin's volatility. Bitcoin base money will become a hard, non-inflationary unit of account, Bitcredit its medium of exchange.

Ultimate Stability 

Commercial businesses drawing, accepting, and endorsing e-bills are usually in an established business relationships, with a good knowledge of their respective credit worthiness. 

Every e-bill stands by itself, atomically. In the rare case that an e-bill remains unpaid, the issuing mint must immediately sell eIOUs and provide the bitcoin amount needed to redeem bitcredit holders. If then seeks to recover the maney through the recourse chain of prior holders, back to the e-bill's drawer if needed. International law fast-tracks this recovery of bills, world-wide. 

This results in a highly resilient and stable free financial system which will replace today's fragile house of cards.  Unlike the legacy deposit banking system, there will be no more contageous bank runs by depositors, as Bitcredit wallet is non-custodial. 

Project Status

Bitcredit "E-bill" version 0.0.1 Alpha for Bitcoin Testnet is Free Software available on Github since July 2023. It is limited for proof of concept purposes. A beta version will be available in Early November which is when Bitcredit "Wildcat" development starts. Details and whitepaper to follow. 

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