The Shape of Money: How Crypto Regulation Misunderstands Time and Semantics
True real-time markets render money unnecessary. Blockchain-based systems cannot achieve real-time settlement. Ethereum-style smart contract design is structurally incompatible with financial markets.
The Digital Asset Market Structure Bill, introduced by Congressmen Hill, Thompson, Steil, and Johnson, repeats the core semantic and structural error of SAB 121: it treats functional consumption assets like ETH as commodities, ignoring that their transfer inherently involves destruction. Just as SAB 121 misconstrued custody as liability based on key control, this bill misclassifies operational tokens as tradable goods, collapsing the distinction between instrument and infrastructure.
Our language encodes logic, and it also encodes judgment. The lax use of words has created a situation that leads to an erosion of our institutions. We are misled by terms that suggest something about a thing we describe but that something is missing because we have used the wrong term. And we no longer respect the boundaries of the concepts we describe with words. Meaning has become arbitrary and with that comes fragmentation and instability.
One example is the proposed U.S. Digital Asset Market Structure Bill by congressmen Hill, Thompson, Steil, and Johnson, which would allow trading of crypto on secondary markets and classify ETH (Ether) as a commodity. But this contradicts the basic characteristics commonly associated with commodities: they can be traded without being destroyed. ETH, by contrast, is consumed as part of system operation—it is not stored, shipped, or delivered like oil or wheat. A trading model in which a third party pays gas fees in exchange for another asset does not resolve the core structural issue. ETH is not a neutral medium of exchange; it is a functional input, required to operate the system itself. It cannot be removed from the blockchain and does not exist in a single place or defined record. Rather, it exists as a logical construct: a transient computational state maintained by a decentralized network of nodes that temporarily validate and agree on state updates. I mentioned this before.
As such, ETH fails the definitional requirements of money when used in crypto markets. It cannot be transferred without partially consuming itself—a direct violation of a core monetary property: that money must be exchangeable without being destroyed. This distinction matters. When crypto assets are held via a custodian, this functional constraint may not apply, especially if client assets are commingled and mapped to a single private key primitive. But in that case, the assets no longer operate as decentralized instruments. They lose the defining characteristic that made them crypto-native in the first place—ceding control back to centralized infrastructure. If someone says “Spending ETH” and “Spending ETH to spend ETH isn’t a real difference,” then the law becomes meaningless. To protect the opinion that “there’s no difference,” you’d have to replace English with something else, and erase every record that we ever built it —just to prevent that opinion from conflicting with reality.
Because the moment we let that false equivalence stand, we destroy the ability for humans to use words and sentences to be meaningfully understood. Our terminology shapes what we can perceive, model, and reason about. If we use the wrong words, we trap ourselves in flawed assumptions. When we say “banks create money,” our minds picture something new being produced, not a discounted credit-reassignment process based on liabilities and trust. That misdirects reasoning. If you don't have a word for a thing, it's hard to hold that concept in working memory. To truly "understand" something like money, credit, or banking we need semantic precision. That means developing new vocabulary that reflects what the system does, not just what it appears to do. It is existential that we get this right.
The rule of law doesn’t just depend on enforcement or precedent—it depends on semantic integrity. Without that it can no longer be interpreted with shared meaning. The SEC (2022) Staff Accounting Bulletin No. 121 is an example of this:
In 2022, the U.S. Securities and Exchange Commission released Staff Accounting Bulletin 121, requiring U.S.-listed digital asset platforms to record crypto holdings as liabilities on their balance sheets — even when those assets were merely held in custody for users and not traded by the platform itself. The SEC rescinded SAB 121 guidance in 2025.
The rule stated:
"...as long as Entity A is responsible for safeguarding the crypto-assets held for its platform users, including maintaining the cryptographic key information necessary to access the crypto-assets, the staff believes that Entity A should present a liability..."
But then, in a revealing footnote:
"...this is applicable regardless of whether the cryptographic key remains in the name of the platform user or is in the name of the Entity."
This is a semantic contradiction: Cryptographic keys do not exist “in someone’s name” — they are technical primitives and cannot be held in the name of anyone. That would require a legal mechanism that designates key primitives as objects of property law, enabling the market to exchange private keys to facilitate settlement. Possession of a cryptographic key does not establish ownership under a custody-based legal framework.
U.S. crypto custody arrangements rely on a legal fiction that designates the custodian as a securities intermediary under the UCC, thereby establishing ownership entitlement through this construct. The private key, therefore, does not formally equate to legal control or market activity.
The text describes platforms transacting on behalf of users — a clear reference to trading platforms — yet the rule was applied to custodians with or without trading functions, in direct contradiction to its own qualifying language. Such discretionary reinterpretation is a form of semantic Willkür (arbitrariness) that undermines both legal foreseeability and the rule of law. When regulatory bodies treat language not as a constraint but as a canvas, institutions lose their definitional integrity.
The Digital Asset Market Structure Draft Bill also commits this semantic error.
True real-time markets render money unnecessary—for settlement, at least.
If we assume full functional equivalence between the different forms of money we know, then we are indifferent to form. That’s why seashells, gold, or cigarettes but not Bitcoin or ETH could all serve as money. We are indeed indifferent to the form of money because the ability to meet requirements—like transaction, verification, divisibility, settlement, and legal recognition—is relative to circumstance, at a given location in space and time.
Therefore: money has no form. Form is relative to the system. The causal model belongs to the system, not to money itself.
Instead of purchasing stocks with cash, we could trade asset for asset. Buying an Apple stock currently priced at $204.08 would require 2.87 Coca-Cola shares priced at $71.06. If everything were real-time, we could remain fully invested, simply swapping in and out of positions without ever moving to cash. The problem lies in the fractional units. But such mismatches—between assets, preferences, or goods—are human-made and negotiable. We can relabel, reprice, or re-denominate. The Apple–Coca-Cola mismatch is not structural—it’s semantic and solvable.
But we still need something to act as a placeholder for what is not negotiable—what flows independently of markets, what lies beyond human control. That thing is time—or more precisely, the way spacetime limits our ability to coordinate exchange perfectly.
Money is needed to create coherence in exchange under conditions of temporal mismatch.
Money’s only truly necessary function is spatiotemporal: to synchronize what does not and cannot happen simultaneously in spacetime.
Real-time settlement, in practice, only works for native assets—those created, issued, and managed within the same protocol or legal system that enables their transfer. For example, central bank RTGS (Real Time Gross Settlement) systems can provide settlement in their own currencies by taking risk on behalf of participants and declaring legal finality. The system works not because technology eliminates time, but because law and public backing absorb it. Central bank RTGS systems like Fedwire define finality based on legal constructs, not solely database state. They can declare a transaction final even if underlying systems haven’t updated.
Blockchain-based systems cannot achieve real-time settlement
Blockchain-based systems cannot do this at all, because decentralization inherently lacks a single authority empowered to declare legal finality on behalf of the system. There is no consensus mechanism in blockchain that can act faster than the consensus itself—no secondary consensus to override or anticipate the primary one. Achieving this would require a dual-consensus architecture: one to validate, another to absorb and resolve uncertainty ahead of time.
While it’s not inconceivable to design a semi-decentralized anticipatory mechanism that could act faster than the main consensus, such a system would still face a fundamental barrier: the inability to absorb risk and cover losses during temporary shortfalls. Central banks rarely invoke this capacity, but it exists. Blockchains have no such backstop, and thus cannot guarantee real-time finality in the institutional sense. Fast consensus implies both risk-taking and the ability to create or source what is lacking. Blockchains—by design—do neither. They cannot absorb risk, and they cannot provision shortfalls.
Without a coordinating authority to bridge gaps or underwrite uncertainty, real-time finality is impossible. Consensus does not equate to jurisdictional or institutional authority. This shows that real-time finality is a governance outcome—not a technological one. Advocates of real-time finance often claim that eliminating intermediaries and enabling instant trade and settlement removes exposure risk. But this is grotesquely naive.
While intermediary risk may decline, liquidity risk intensifies. To participate in real-time settlement, investors must pre-fund all trades, meaning capital sits idle. If you cannot execute a dependent trade due to momentary illiquidity, you're busted—as a bank.
In trading, latency is measured in milliseconds. In post-trade settlement, delays can span minutes or more. The distinction matters: trading updates positions and pricing; settlement moves actual assets and reconciles ownership. The risk isn’t just the delay between trade and settlement, but its unspecified timing. A settlement convention might specify a day for exchange—but not a specific hour. Even when we have early intraday cutoffs, they introduce their own challenges. A trade commitment is instant. A settlement commitment can span a period. Being balanced at the end of the day—after accounting for all incoming and outgoing assets—is one thing. Recycling smaller quantities to meet that balance is another. This idea was also already formulated in An Enquiry into the Nature and Effects of the Paper Credit of Great Britain (1802) by Henry Thornton (1802).
Compressing post-trade into real-time isn’t just a speed upgrade; it’s a categorical shift that introduces new forms of systemic pressure. This isn’t a theoretical glitch—it’s the core flaw. Central banks are well aware that instant settlement arrangements create higher liquidity needs than netting systems. With no time gap between trading and settlement, pre-funding becomes mandatory. Liquidity management becomes more complex. The opportunity cost of uninvested cash rises. The supposed benefit of eliminating risk is conditional on maintaining liquidity—which defeats the purpose.
We can counteract those effects partly.
In traditional systems, account providers (e.g. custodians, CSDs) have defined responsibilities and can apply updates automatically. In blockchain or token-based systems, each participant must explicitly authorize updates. Yet the system depends on synchronized consistency across all nodes to function. This creates operational interdependence without centralized override. No participant has full autonomy—yet no single authority guarantees continuity. Such a design introduces fragility, not resilience.
Ethereum-style smart contract design is structurally incompatible with financial markets.
By binding contract execution to asset-specific logic, smart contracts on Ethereum require bespoke, asset-specific processing. This introduces delays that generate price signals at the point of settlement—distorting the informational role of prices and breaking the clean separation between trading and fulfillment. This severs the abstraction layer needed for systematic financial treatment and introduces settlement-driven distortions. As a result, platforms based on Ethereum—where each asset has its own operating model in the form of a standalone smart contract—are fundamentally unsuited for financial market infrastructure. They are appropriate for collectibles and isolated value expressions, not synchronized economic systems. Platforms like Polkadot, which also employ asset-specific execution environments, must reconsider whether their structure aligns with coherent financial theory.
A new paradigm for asset-specific financial infrastructure could be declared, but it would render price formation effectively random. Resource allocation would then depend on smart contract design proficiency—not market valuation. That would break the informational role of prices and distort capital efficiency. It’s a path no stable economic system should take.
The difference between central clearing and bilateral settlement for securities lies in who issues the instruction to move assets. In centrally cleared markets, the Central Counterparty (CCP)—not the participant—issues settlement instructions. The CCP guarantees settlement, absorbs the risk of shortfall, and sources missing assets via fail lending or mandatory buy-ins. In bilateral settlement (without CCP clearing), instructions come from participants themselves. Even after trade matching, a failure to instruct can result in a failed settlement. This distinction exists for a reason: CCPs aren't inherently better, but they transform bilateral promises into centrally managed risk.
Blockchain can’t replace that role unless it replicates those institutional responsibilities. Even in tokenized markets, CCPs may still be necessary—not for technical reasons, but because enforcing delivery requires power, not protocol. Clearing, in any meaningful sense, requires a defined object, a guaranteed transformation, and protocol-enforced trust minimization. That’s relative centralization for at least two participants relying on a third party and not decentralized.
These structural differences explain why real-time settlement—while technically feasible in narrow cases—remains inefficient or destabilizing at scale. It’s not just about faster ledgers. Even full control over legal, operational, and liquidity frameworks is not enough.
True real-time is unachievable—not merely due to technical limits, but due to the physical properties of spacetime.
There is no universal “now,” and synchronization across distributed systems always entails some latency. Even centralized systems face latency—through their members and the need for them to issue and process instructions. They are quicker, but not instant. They're quicker because they can collapse time via liquidity-saving mechanisms—technical netting, frequent optimization between gross settlement windows. These processes batch and process obligations chronologically, making the system more efficient—but not instantaneous.
Critically, evaluating “real-time” at the system level means asking: How is risk absorbed? How are gaps managed? How do legal and institutional structures uphold trust?
A full pdf version called “Money Is Nothing” can be downloaded here.
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