So I’m still unclear on how this works. The difference with shorting a stock is that the short seller actually has to give the bitcoins to the person they sell

So I’m still unclear on how this works. The difference with shorting a stock is that the short seller actually has to give the bitcoins to the person they sell the shorted bitcoins to - a “signed note” doesn’t work. The person buying the btc from the one shorting expects bitcoins to appear in their wallet. Where do those bitcoins come from? In the case of a short sale, the brokerage can manufacture imaginary “negative shares”, say a piece of paper, like you say. But that doesn’t work here because the brokerage can’t manufacture bitcoins. To put it another way, let’s say you are shorting gold, but your counterparty won’t accept a piece of paper. They want delivery, like an actual gold bar. That gold bar has to come from someone who now has one less.