Bitcoin & Gresham's Law - the economic inevitability of ...
Bitcoin & Gresham's Law - the economic inevitability of ...
Bitcoin and Gresham’s Law Escape Velocity
Gresham’s Law Bitcoin Theory
Gresham’s Law and Bitcoin Bitcoin Theory
Gresham's Law and Bitcoin - Macro
Does introduction of ASIC mining invalidate "Bitcoin & Gresham's Law - the economic inevitability of collapse"?
In Bitcoin & Gresham's Law - the economic inevitability of Collapse, the author says that dishonest miners will use botnets to mine and that this threatens the entire Bitcoin network because of their zero power cost. It's not a new paper, so I'm sure the author didn't anticipate ASICs. Does the introduction of ASIC mining hardware invalidate this argument?
I understand the advantages of sound money and digital scarcity is personal the element of btc that attracts me most. I’ve heard some really compelling arguments from Austrian based economists for bitcoins finite number but I’ve not heard anyone explain why the cap is set at 21 million. Rather than 19 or 35. Why is 21 million a good number to cap supply at? What relation does that supply have with the addressable market of people and the demand they will create. I feel bitcoin maximalists make a strong argument about software eating the world and due to gresham's law and game theory why bitcoin adoption will increase over time. If this happens and bitcoin become the reserve currency of the world and all the supply is mined what kind of economy would it create? I understand bitcoin can be divided in to sats but what happens for example 200 years after the last block is mined. Lets say the population has grown substantially without enough bitcoin to go around why would anyone ever sell a sat. Will economic growth stagnate? Will we also need a fiat currency for payments and will bitcoin always be a store of value separate to the day to day transactional ‘real’ economy.
The monetary system for a successful and sustainable future
Kinetically Charged Yield Bearing Asset Based Monetary System of Shared Economic Wealth In the same way our sun unconditionally delivers an indiscriminate share of energy to planet Earth that stimulates life, we present a comparative energy system to stimulate the movement of money, assets and hence overall commerce and economic activity in a fair, honest and rewarding process. It is an entirely new monetary system, which is based on movement, kinetics and velocity. We name the system Kinesis. The Kinesis system is an evolutionary step beyond any monetary system available in the world today. It enhances money as both a store of value and a medium of exchange, and has been developed for the benefit of all. Core to the mechanics of the system is the perpetual incentive and thus stimulus for money velocity. Outside capital is attracted into Kinesis via a highly attractive risk/return ratio and then put into highly stimulated movement, promoting commerce and economic activity. This is achieved through structuring money to represent 100% allocated title of an asset and then attaching a unique multifaceted yield system that fairly shares the wealth generated by the system according to participation and money velocity. Aside from offering the greatest store of value and striving to provide the most efficient medium of exchange, Kinesis is a monetary system focused on: minimising risk; maximising return; stimulating velocity and maximising the rate of adoption. Kinesis defeats Gresham’s Law of Money that asserts “bad money drives out good”, by highly incentivising “good money” to circulate and be utilised as an effective medium of exchange. Someone who values money over other money is inclined to hoard it and not use it as a payment currency, but rather use the less valued currency for payments. This model has been broken in the Kinesis system as the reward for using the valued currency is so tremendously strong. The primary currency chosen for the Kinesis monetary system is a kinetically charged physical gold based currency. Gold being the greatest store of value, indestructible in every sense, physically rare in quantity and has been appreciated by human civilisation as money for longer than anything else. It is the money created by our universe and not by people. It is created by a rare cosmic event of two neutron stars colliding, so rare that the first time this event was witnessed by humankind was 17 August 2017. Hold gold in your hands and you can feel its energy. It is the colour of stars, it is the money of the universe. Gold is the undisputed champion of fair, honest and sustainable money. Put allocated gold on a kinetically charged decentralised rail system and you have a very special monetary system. We believe this is what we have achieved, and a lot more. The Kinesis system can be overlaid on top of anything that can be standardised, traded and stored as value. Accordingly, we are developing a kinetically charged digital currency suite with allocated title of bullion, fiat bank notes, cryptocurrencies and other assets that are physically and digitally securely stored in our allocated Kinesis banking and asset management system. By attaching a yield to digital currencies, risk/return ratios can be forecasted and virtually all currency and investment asset markets can be targeted and infiltrated. As such, over time we plan for more currencies and assets to be added, ultimately infiltrating more markets spread across the world. Kinesis will attract capital from: Cryptocurrency markets – currently little to no yield The gold and silver markets – currently little to no yield Fiat currency markets – low to negative yield via debt based interest rates Investment asset markets – comparatively low yields for stock market and property investment Ultimately, if someone can get the same asset at the same price, but with significantly lower risk and higher return, it makes little sense for them to not choose the asset with the better risk/return ratio, particularly when significant returns are on offer. As the Kinesis monetary system is one that allocates title directly to the ultimate beneficial owner, where banks conversely hold legal title of their customer deposits and put those deposits at risk, the Kinesis system is in fact much less risky and with much greater return than legacy alternatives. With global low to negative interest rates, bail-in provisions, depositors’ insurance being removed, and with banks holding legal title to their customer deposits, it makes no logical investment sense to choose risk and nil-to-negative return over the alternative Kinesis system with negligible risk and high return. In comparison to legacy fiat money and fractional banking systems, Kinesis seems too good to be true, but it isn’t. Once clearly understood, Kinesis will lead a highly disruptive paradigm shift in money. Kinesis has taken the very best properties of both old-world money and new-world innovation and combined them together to power banking and commerce in a new fair, inclusive and incentivised way. The result is something extraordinarily powerful that will change the way we all view money forever. The primary elements of Kinesis are: Gold & Silver - The primary currencies offering allocated 1:1 title to physical gold & silver – the greatest stable and definable stores of value for use in commercial and private transactions and investment. Yield - A perpetually recurring yield generated from economic activity, not from debt based interest like fiat currency – providing definable value via Net Present Value (NPV) calculations for use in commercial, institutional and retail investment. Cryptocurrency technology – can only be enhanced. Blockchain peer-to-peer decentralised distributed ledger technology – blockchain may become obsolete, but distributed ledger technology can only be enhanced. Kinesis can never be destroyed as these elements will never go away, never be valueless and can only be enhanced. Nothing can take away intrinsic asset value and the value of future cash flows, and technology will only ever be enhanced. Gold and silver have survived the greatest test of all, time, and so too will Kinesis. Other cryptocurrencies with value determined by the anonymous decentralised blockchain payment capabilities and their controlled supply scarcity are all at risk of losing value as their initial founding value proposition is diluted by others coming into the market with enhanced solutions. This is evidenced by Bitcoins’ dominance continuing to fall and has been witnessed in many other industries and markets throughout history as competitors rise. A major contributing factor to the volatility in cryptocurrencies is that they are impossible to value. By intrinsically backing a currency, hence back-stopping the value and defining the risk, and then placing a yield on it, hence defining the return and providing superior value, then a currency which is safe, stable and rewarding is created with a highly attractive investment risk/return ratio attached. This form of currency has necessary real-world application in both commerce and private transactions, along with attracting capital from institutional and retail investors and savers. This is not just a currency, this is a new parallel monetary system to sit alongside but integrated into the legacy problematic centrally controlled fiat and fractional monetary and banking systems. Kinesis is the undeniable superior alternative. This model is highly revolutionary alone, however to take it the next step further, already in place is a highly disruptive retail and institutional commercialisation strategy with unique distribution and committed adoption from day one of launch. Pre-existing investment commitments are in place for the Kinesis currency suite which will surpass the largest ICO to date by a significant multitude. Kinesis is being developed and being brought to launch by a consortium of industry leading organisations in the precious metal trading, mining, refining, exchange, technology, blockchain, mobile banking, vaulting, postal system and marketing spheres. From launch the system will have extensive institutional and retail distribution, integration, liquidity and adoption. Our liquidity, which will be provided by professional bullion market participants and others, will enable billions of dollars of value to efficiently enter and exit the market. Direct and indirect integrations will provide for immediate adoption into hundreds of millions of users. With the evolution of blockchain, cryptocurrencies and mobile devices, the people of the world have been presented with a profound opportunity. It’s an opportunity to apply empowering creativity to money and be part of a person-centric revolution. We have now been enabled to adopt and support a system that individually and collectively benefits us all based upon nothing more than participation. This system combines new world decentralised technology with the oldest, fairest and most sustainable form of money, to empower and serve the interests of us all equally and capitalistically.
This is my first contribution to the CryptoCurrency, and as already been commented it's too long, you can scroll down to the MAIN PART, so, please comment about changes you would make to it or just your opinion in general. Thanks Remember Nash equilibrium, Gresham's law, the rules of the Stasi? So the banking system is similar to the Stasi. But that's not the topic. Why did crypto currency become currency in general? The Nobel laureate in economics would have answered something like this: "At some point in time, the market fell into Nash's equilibrium, where everyone suddenly agreed that counting bitcoin as a currency is normal." Why do men wear trousers, and women wear skirts? Historically, in Scotland it wasn't done that way. It's just that at some point everyone agreed that this should be so. Nash equilibrium. Generally ... What is the currency? A currency is a means of indirect exchange. Once the means of exchange were the feathers of a pheasant, which before that did not cost anything. But then the demand arose and people said: "The feather will be a currency, a means of indirect exchange." Gradually, the general requirements for currency were formed: it should be simply divided into parts, and its value does not change; It is easy to carry around; And it should have a long shelf life. Well and the main thing - people should be ready to use currency as a means of exchange. With the crypto currency the same thing happened: people were READY to use it. Now I'm ready to exchange my phone for bitcoin. It is clear that all other criteria for crypto currency is, perhaps, even better than any other currency (it is much easier to store, transfer, divide, and it is eternal). And why there was a crypto currency? One of the main reasons, in my opinion - is the huge embitterment of people on the banking system with all of its rules, which are being promoted under the auspices of a mythical struggle against scammers and other scoundrels. So, the current banking system is similar to the Stasi, to which I must explain why I have such a gait, and not another, and why I go to work such a route, and not another. And then, unless two-meter fences stop real criminals? When criminals need to break into the banking system, they just buy a bank. All these safety rules are, in fact, useless. Therefore, there is a global irritation of people by the banking system. This can be seen everywhere - and in business of any size, too, from small to large. The annoyance created a request for some kind of analogue to the current system. There was a crypto currency. And the process can not be stopped - the crypto currency will take its place in the world economy. What a question for now. The problem is that in fact, the crypto currency is not used today precisely as a means of exchange. The phenomenon is called the Gresham's law: no one wants to pay with the currency, which constantly and strongly becomes more expensive. Everyone has heard a story with two pizzas that were bought for 10 thousand BTC in 2010 (just curious if pizza shop kept those bitcoins until today). Who wants a pizza for $ 15 million? Or do you want to drive in a Toyota car, bought today for 30 BTC, after learning in a year that they paid $3 million for it? Therefore, the crypto currency is used as a means of accumulation and speculation. At the same time, the process of continuous growth leads to the fact that basic crypto-currencies lose their properties as a means of settlement - stability. They turn into the semblance of shares of a rapidly growing company. And who wants to sell or change the goods and services of treasuring shares today, if tomorrow they will cost more. This is problem. Stablecoin The volatility of the crypto currency is the subject of long-standing discussions, in which the words "bubble" and "speculative instrument" can often be heard. The problem is solved including the launch of special settlement crypto-currencies, the so-called "stablecoins". This is a crypto currency, the value of which is determined not only by the demand for it, but also by more established methods. In the world there were several attempts to create such stablecoins. As a rule, they were tied to either the value of the fiat currencies - the dollar, the euro - or raw materials (commododis) - oil, gold, and so on. But due to various reasons, they were not widely used. First of all, because the creators of such currencies violated the principle of blockchain - distribution and independence. They issued crypto currency, they sold it, and they bought security on the proceeds. And the fact that the security was stored and controlled by the release organizers did not inspire confidence in the community. Now there are more advanced projects. In general, there is a hypothesis that the future is behind the "stable", tied to commododes. It is based on the fact that in the society in general and in the economy in particular, the so-called fatigue of the material of the classical unsecured money. At the same time, we see that the same dollar, euro, yuan, Brazilian real and all other classical currencies are also subject to volatility. And all this against the backdrop of a global rise in the cost of money. The economy is looking for alternatives. But will the social request for a block of commodities be critically higher than for classical money? I am not sure. But the fact that it will be more than now - most likely. Right now, there are several interesting stablecoin projects in the world: There is a project Tether, which stably enters the TOP-50 on capitalization (just over $300 million). Tether is the dollar's coin, 1 to 1. In Israel, they launched a start-up, which tries to make a crypto currency, tied to oil. In fact, they are not yet very successful, because they can not solve the problem of oil storage - it is difficult to store. There are projects that try to link the crypto currency to computing power, to electricity, such as SONM. You can easily explain to your mother about the crypto currency, tied to gold. I have not talked about the main (yet) and most obvious commodity - gold. Gold is a commodity that everyone understands. Gold accounts for about 5-10% of the global investment market. Gold is a natural limited natural resource. According to open data, the gold reserves of governments are about 30 thousand tons, and about the same in the hands of citizens. Total about 60 thousand tons. About 3 thousand tons of gold is extracted every year. This is a stable figure that can not change dramatically in any direction due to distributed production in different countries and established technologies. Therefore, the value of gold, expressed in goods and services, practically does not change. All this makes gold the ideal equivalent of calculation. Actually, it was so throughout the history of human development. Even the first money was tied to gold until governments decided to replace the gold mining process with a simpler process of printing paper money. Well, the main thing: you easily explain to your mother about the crypto-currency, tied to gold. And she will understand you. Now there are several "golden" crypto projects. There are not so many, but everyone has a different concept: Impressive is the OneGram project from Dubai, which plans to raise $ 500 million for the ICO, which began on May 27 and which should end on September 24. For today, 22% of 12,400,786 tokens sold at $ 43.18 apiece are sold. "Dubai" and "gold" sounds somehow impressive, you must agree. OneGram is tied to the stored physical gold. They have a content, strange, in my opinion, a counter: they position themselves as a project for Muslims. In the world of blockade, any artificial limitation causes questions, because it contradicts the very concept of technology. True, according to the founders themselves, now most of the investors of the project are not Muslims. Still there is a project of the British Royal Mint - Royal Mint Gold, in which one token is tied to one gram of gold. The project raises questions from the point of view of decentralization. Another ambitious project is the American-Australian OZCoin. It is provided with 100 thousand ounces (slightly more than 2.8 tons) of gold at 24 carats. Also, there is a "Russian" Goldmint. I took the "Russian" in quotes, because it has international team. The project plans to hold ICO in September, and in May held pre ICO and collected for a couple of days $600 thousand. Imagine that there is an ingot of gold that is able to be transported quickly and cost-free to anywhere in the world without a chance of being stolen. Usually verification of the team removes 9/10 of the risk - the probability of "scam" or some illegal actions is equated to zero. I always say that Whitepaper, the business plan in the ICO world is secondary to the team. It does not matter what you do, but who you are. If tomorrow Elon Musk will grow cows, then investors will believe in his project. Overview of TOP-15 crypto-currency Now about the crypto currency in general. On the Internet, you can easily find sites where you can see the capitalization of each crypto currency, which is drawn at the crypto-exchange, its current price in dollars, the schedule of price changes, the amount of currency that is traded on the market. Such statistics will help a little to understand the beginning investors, but give at least a general idea of what is happening. I will briefly talk about several crypto-currencies in the TOP-50 on capitalization: what are their essence, advantages and disadvantages. And despite the fact that in many of them I invested money, I will not give any specific advice on investment here. MAIN PART
The analogy from the real world is gold. This currency appeared first on the market, and therefore occupies (so far) the first place in terms of popularity, capitalization and exchange rate relative to the dollar. All other currencies, which appeared later, began to be called altcoins, and bitcoin is still a benchmark, from which all are repelled. Bitcoin is a crypto currency that can only be sent, received and stored. In doing so, it has many disadvantages inherent in the architecture itself: it is slow, difficult to scale, requires a lot of power for mining, a lot of storage space, transactions are expensive, and cryptography can be hacked if desired. Here are the cons: Bitcoin is slow, means that transactions in bitcoin occur every 10 minutes. To confirm the transaction, you need to mine, and this is a very energy-intensive process. To increase the number of users (scalability), you need to increase the computing power of computers. Bitcoin was not such a decentralized system, as it was announced at the very beginning. Theoretically, the miners can unite into huge pools and manage the network. The maximum number of bitcoins that can be released is 21 million. To date, they have already produced 16.75 million. What will happen when the total volume reaches the limit? Obviously, there will be a so-called hardfork, when it will be decided to create a new version of the bitcoin-network. This means a big vote, if you want - holding a referendum among the holders of the bitcoins. The Chinese holders of the Crypto-currency were in favor of holding such a referendum already in September. After him, perhaps, the "constitution" of bitcoin will change. And we know how constitutions change easily and quickly in different countries ...
An analogy from the real world is the new Microsoft. "Ether" begins to press bitcoin in terms of popularity. Probably, this currency has more prospects. If bitcoin can act only as a means of exchange and storage, then Ethereum has a number of advantages. The main thing is the ability to create smart contracts. Now, this platform is the most popular in the world in the construction of the block economy, and is used with numerous ICO. Ethereum inherited almost all the diseases of bitcoin. Yes, it's faster - it updates every 10 seconds (that is 60 times faster), but it has the same scaling problems (the recent case with SONM is an example), power consumption and storage. It may well challenge the leadership of bitcoin in the near future.
An analogy from the real world is the new VISA. The project team is trying to make a new payment system so that it can make payments in all currencies. The advantage of this currency is that it is used by banks. However, it is not decentralized. Coins can not be mined, therefore, their number does not increase. Ripple has a huge speed advantage over BTC and ETH, but the operations are not so transparent. For the classical banking system, this is normal - there anonymity has never been welcomed.
An analogy from the real world is platinum, which is cheaper than gold. Absolute analog of the bitcoin. Faster, better in all respects - but just turned out to be the second. But it is worth it in terms of diversifying investment in the same bitcoin. However, there is nothing from the point of view of innovation.
The analogy from the real world is Alibaba (not Amazon). Alibaba - the largest online store with a multi-billion dollar turnover. But still understand that it is still not as steep as Amazon. Classic may even be more expensive than regular Ethereum, but there are some nuances. ETC appeared after the Ethereum hardfork, which occurred last fall, and still does not cause trust in the crypto community. The main attention is still paid to ETH, and all the iconic projects are being conducted on this platform.
Dash and NEM
The analogy from the real world is "not clear who." Honestly, I do not often see these currencies. NEM is mainly drawn in Japan, where it is officially allowed to buy and sell goods for crypto currency. The number of coins is always one less than 9 billion, additional emission is not provided, so there is no mining, but there is a so-called harvesting. A major jump in the NEM course occurred in May, when a closed Mijin platform was created on the basis of NEM, through which Japanese banks can conduct secure transactions. NEM is built on the example of bitcoin, but there are no fundamental differences in architecture. Dash - crypto currency, whose transactions are completely anonymous. Many people talk about this as an advantage, but think: why does an ordinary person have complete anonymity in transactions? Still, all decisions about changes in the "constitution" take place with the help of a general vote, that is, the Dash-network is completely decentralized. Naturally, both currencies work faster than a bitcoin and have a number of software advantages.
An analogy from the real world is the new Google. A real innovation in the world of crypto currency. It offers a fundamentally new paradigm that can change everything at all. IOTA is also called the "crypto currency of things". It appeared five years ago, but it has become popular just now. As soon as it entered the stock exchange, it immediately burst into the Top 10 crypto-currency. How does bitcoin work? In order to perform a bitcoin transaction, the miner must do some work to confirm the transaction. Spend time, huge amounts of energy and allocate space for storage. In the case of IOTA, you can independently confirm the transaction with your device - for example, a regular phone. Your smartphone confirms two other transactions. Those transactions are confirmed by other two. And so on. The more users, the faster and better the network. Now IOTA users have accumulated a critical mass and the currency has become very popular. There is no limit to scalability, no miners are needed, so transactions are free. You do not need to pay a commission to the miners, you do not spend computing power. In general, this is a real bomb that threatens to make a revolution. IOTA solves all problems inherent in bitcoin (limited, high demands on computing power, pseudo-decentralization, data growth and storage problem, slow speed).
The analogy from the real world is JFC Sistema. Briefly, unlike bitcoin, Monero emission is not limited, but transactions take up several times more space than bitcoin. But this is not the most interesting. In general, low-cost transactions, good translation speed, good mining.
An analogy from the real world is the Empire State Building. EOS - the evolution of the currency BitShares and Steemit (which, by the way, seriously criticized that does not prevent BitShares from getting close to the top 10 on capitalization). It is based on a breakthrough technology, which can be compared with the appearance of a blockade. In theory, they can replace Ethereum or enter into synergy with it. In terms of technology, the project is better than Ethereum. Developers have created a new language, and now the EOS platform creates an operating system on which it will be possible to build separate applications. The logic is this: all databases, all web programming will be transferred to the block system. New technologies will allow asynchronous launch of different applications, which will seriously increase the speed of the OS based on EOS. The team expects that the whole world will work on EOS. In general, to be honest, this is the world of "Crypt 3.0".
An analogy from the real world - ? A useful tool not to lose on converting, not to depend on the legislation of different countries, taxes and so on. There is also a similar currency Tether, which is tied to the dollar 1 to 1. If you want to sell or buy dollars on the blockchain, you should come here. These are not speculative instruments. (Here you need to understand that BitShares itself as a unit of account is also "floating"). It is used as a currency for collecting commissions for a transaction of a fiat currency. It can be speculated. But if we want to operate with fiat money in the blockchain, we can do it inside the BitShares system). And 5 more crypto-currencies from the top 50 If you look further, in the top 50 crypto-currencies there are a few notable projects. I will list a few.
An analogy from the real world is the stock exchange. It is essentially a stock exchange: an Ethereum platform on which you can exchange different cryptocurrencies (but they all have to be the ERC20 standard - this is the most common Ethereum standard on which most projects are developed). Everything is regulated by smart contracts. This is a new economic tool in the world of blockchain. In fact, they brought the derivatives into the blockchain, which no one had done before. It seems to me that this is a niche product, which, however, can grow 5-10 times.
An analogy from the real world is McDonalds. A good, fashionable currency, I see future in them. Fast, cheap in a transaction, profitable in the mining. It is loved by miners - in other words, market providers like it. And it is like McDonald's - does not belong to anyone. 99.9% of McDonald's shares are traded on the stock exchange, but the largest shareholder owns only 2% of the shares. Decreded as McDonalds.
An analogy from the real world is Netflix. Fantastic project. And by "fantastic" I do not mean "cool", but the original meaning of the word. The business model is incomprehensible, but the team is good. They try to work in the market of events predictions. While the project is in the alpha stage and no real money goes in there, the team really knows how to correctly analyze the data. Aragon can become crypto-Netflix. How they do it - I have no idea. But just to remind you, 7 years ago Netflix was unprofitable.
[PSA] Don't be a bad shibe; do not abuse free hosting provider plans.
Serious talk for a moment, fellow shibes and dogecoin lovers. There's been quite a number of threads about using cloud hosting companies (AWS, Azure, Digital Ocean, and others) to do doge mining. I know I, and all of you are extremely excited about Dogecoin, and I know we all want supar hashrates but we need to talk. Doge's algorithm empowers us to use CPU mining and this means a lot more flexibility about where we run minerd and cgminer; but abusing a hosting company's free tier to do this is going to get you kicked off and is abusive. There's a difference if you have a coupon for a bajillion free credits and hosting to do with as you wish - many providers have these. Using those free credits means you are technically paying for the service and will probably burn through the CPU hours given and end up paying. It's also a different thing to use on the spot pricing arbitrage to do your mining, that's also fair game. But please, please - as one shibe to another - don't use free tiers on hosting providers (these are typically 1 vCPU (virtual CPU) with low memory) to do your mining. This is well, rude - and we all know you can abuse these types of offers to create a virtually unlimited number of accounts. This punishes other customers using those systems and is just bad shibe karma. So please be polite: if you've got coupons & credits, cool - just don't try to squeeze those free tiers to get some mad hashes - you won't get anything but kicked off those services and give us all a bad name. You wouldn't install malware on people to mine, you wouldn't take someone else' power to run your milk crate GPU setup - let's leave that to other communities. Let's be cool. tl;dr Be cool. Use things you're paying for in some capacity, don't abuse free things companies provide. It's not nice or polite. We will get to moon landing, let's just be cool about it. http://imgur.com/b8S3vcp EDIT: As I say in http://www.reddit.com/dogecoin/comments/1tz736/psa_dont_be_a_bad_shibe_do_not_abuse_free_hosting/ceczixo - there s an entire world of underhanded/dirty tricks other mining communities use - botnets, malware networks, spamming free signup accounts (100s or 1000s of accounts), cloaking binaries, etc I mean, read this post by Charles Stross Why I want Bitcoin to die in a fire:
Bitcoin violates Gresham's law: Stolen electricity will drive out honest mining.
So, let's stick to honest mining. And GPU setups sold in milk crates because those are pretty awesome milk crates.
Under the auspices of Investors' relentless reach for yield in ZIRP/NIRP environment: it seems the savvy among them have struck upon a way to get decent income on savings. (Zero/Negative Interest Rate Policy) Loan it out to the Bitcoin Bulls on BFX. Given that there are way more dollars than BTC, and a whole range of people who prefer income, albeit a derivative play on a dubious digital unit, as opposed to speculating on the underlying issue; AND given the lack of change in short interest; we can only deduce sellers are actually selling their holdings in a stealth accume regime from weak to strong Bitcoin Bulls on BFX. The trend we all are witnessing, achieves its logical conclusion upon the expiration of either BTC sellers or yield searchers. I think the outcome is evident under Gresham's Law. http://en.wikipedia.org/wiki/Greshams_law TL;DR When fiat is the overvalued and BTC the undervalued, BTC gets hoarded by rational people. Hence, Sellers will loose. After all sellers cannot compete with Citibank. The Citibank who just loaned me 10k on super easy terms. The same bank like so many other banks making loans like these to thousands upon thousands of people everyday. I just happen to put my 10k in the swaps for hire. What I make in two weeks covers my carry all year. I am not alone. Or maybe I just took the 10k and went full retard BTC. Bought 10 and then pledged it to purchase 25 more. That bull is not alone. And then there are miners and early adopters selling the real coin daily. Whats that? 3600 coins, $2.32M. Pfft. In the last 30days the USD swaps went to $30M from $24, an increase of $6M or $200k/day on average. The trend appears to take a parabolic shape with yesterday's increase $764k, and yet the Avg CFD rate is in decline on the same timeframe. Indicative of the hotness of Citibank money flowing in. In the next month, I project we go to $42M USD swaps, an increase of $12M. Daily spikes in the $1.5M range. That's enough to satisfy over half the daily mining supply at today's market price. Markets move on the margin, and while a $1.5M daily increase in swaps is not enough to absorb daily mining supply, I do think its enough to convince the strongest weak hands to maybe hodl a few days longer instead of sell. And that sort of thing leads to a virtuous cycle of psychological support. And that translates into support for higher prices. And in Bitcoin land that can only mean one thing. Im not saying bubble. Tl;DR. The hot money replacing hot China money belongs to raphael_bitfinex :-) e: username. Spelling. Grammar
Markets and Price-Setting: Thoughts on information, created goods and services, fixed-supply commodities, financial instruments, and other market values behave
I've been reflecting on Paul Mason's Postcapitalism, particularly as concerns what he identifies as a hum-dinger of information goods: Information goods destroy the price formation mechanism based on scarcity. That's one of a few cases in which markets as price-setting mechanisms fail, or are subject to very high degrees of ambiguity. Four particular instances come to mind:
Information goods, as identified by Mason.
Existing products -- effectively the resale market.
Financial assets: goods whose price is predicated on scarcity and some ascribed basis for value.
Extractive goods: resources which are used faster than their replacement rates.
Each poses specific failures to usefully set a market price that corresponds to the true costs of production. What I'm posing here is more an exploration of aspects I've found, and still find, contradictory. I'm not claiming to have final answers, though I'm starting to land a few good leads.
On "natural prices"
While much lay discussion of economics holds that the market price is the fair price for a good or service, the question of what a "natural" or "fair" price has occupied a great deal of economic thought and discussion since the time of the Greeks. Adam Smith in Wealth of Nations proposed a definition which remains close to what's commonly accepted today -- a total cost of inputs, plus normal profits:
When the price of any commodity is neither more nor less than what is sufficient to pay the rent of the land, the wages of the labour, and the profits of the stock employed in raising, preparing, and bringing it to market, according to their natural rates, the commodity is then sold for what may be called its natural price.
The cases I'm considering here all violate this in one way or another. This is troubling as they're increasingly key to economic activity.
Information wants to be free.
-- John Perry Barlow In an efficient market, quality information is consistently undervalued. In this case: fixed costs of production are high, but marginal costs of production are low. It takes a lot of time and research to create a quality book, a piece of music, software, news reporting, pharmaceutical, chemical process, etc., but once developed the costs of manufacture are far, far less, effectively zero in many cases. That's one fundamental contradiction of the "knowledge economy". There's the further problem of Gresham's law as applied to information: cheap, low-quality information tends to drive out high-value, but expensive-to-produce information. Ask anyone in the news, broadcast, or publishing industries.
There are good cars and bad cars (which in America are known as "lemons").
-- George Akerloff, "The Market for Lemons" This is the second-hand market -- goods which are re-sold by an initial buyer, after initial purchase. Flea markets, swaps, Craigslist, consignment stores. And antique shops and auctions. The fundamental characteristic of each of these is that the good already exists. There is no production function. Price, instead, is effectively a motivator -- what does it take to convince the holder of a good to part with it? There's a Spanish folk saying I've only recently learned, its English translation "Buy from desperate people, and sell to newlyweds." In both cases, the supply and demand curves are shifted to the advantage of the middleman buying in the first instance and selling in the second. In some cases, there's an alternative to buying used: you can buy a new item or make one yourself. For many utilitarian goods (clothing, furniture, children's toys, used books or records), the second-hand market offers considerable savings over new or self-made. Keepsakes and mementos have highly asymmetric valuations: the holder usually ascribes a high sentimental value, while others may view the item as little more than clutter or "old junk". In this case it's typically unlikely for the piece to be sold -- the holder's valuation is higher than any potential buyer's, unless the former is desperate. Antiquities or fine arts, as opposed to personal mementos and keepsakes with high sentimental value pose a different situation: if it is the specific item in question and not a functionally equivalent replacement that is sought, then there is no ascribable production cost. You cannot make a "new" original Rembrandt, or Picasso, or Ming Dynasty vase, or piece of ancient Egyptian art. Price of such goods is entirely dependent on the demand for such products. It calls into question the entire concept of what a "natural price" of such a good is. This case is actually the genesis for this essay -- the example I had in mind was of a Stradivarius violin -- there are about 650 left in the world, largely manufactured between 1680 and 1700, and present market values range from hundreds of thousands to millions of dollars. This despite notable failures for blind listening tests to distinguish or prefer Strads over other instruments. While modern mass-produced violins can be had for as little as £80 new, more expensive hand-crafted instruments comparable in tonal quality to a Strad fetch about £15,000. That's still a considerable discount on the Strad -- by a factor of 200. The embodied labor?
It takes around 120 hours to make a violin, 150 hours for a viola and 300 hours for a cello.
That's an all-in £125/hr cost of labor, assuming labor is the principle input. Similarly, nearly indistinguishable art forgeries are fairly common, there's the case of "Jefferson's Bottles", literally an instance of new wine in old bottles. Or forgeries of antiques, antiquities, and the like. In all cases, the immediate quality of the forgeries is quite difficult to tell, though dating of materials by radioisotopic means usually manages to distinguish them. What's changed is the perception. What marketers call "selling the story". Or, quite bluntly: changing the demand curve for a product. Extant products fall into two general categories:
Those for which there is an imbued additional value -- above and beyond the intrinsic use-value of the product. These are products which tend to be either asset classes (if the ascribed value is widely shared) or keepsakes (where the ascribed value is personal -- "sentimental"). Goods with high sentimental value rarely sell -- the owner ascribes more worth than the market. Works serving as an asset class (specie or fiat currencies, precious metals, stocks, bonds, other financial instruments) have effectively no sentimental value.
Those for which the intrinsic value is the primary consideration. This is the class for which the economizing purchaser can save a great deal over buying new.
And finally, extant goods have the "lemon" problem, and in fact, in the form of the used-car market, are the basis for George Akerloff's "The Market for Lemons" paper noted in the epigraph for this section. In the case of established goods (e.g., antiquities and fine arts), the asymmetry detailed by Akerloff tends to be minimized. In the case of certain complex goods: automobiles and electronics certainly come to mind, concerns on the part of the buyer over the serviceability of the good in question tends to 1) keep prices depressed and 2) limit the number of quality items actually offered to market -- the seller knows that it will be unlikely to recapture the true value of a quality item.
Because that's where the money is.
-- Willie Sutton, on why he robbed banks. Here, you've almost the inverse situation of information goods: marginal cost of production is exceptionally high - - there's either a workfactor cost, or simply a finite supply (for numerous reasons, to be explored more). Will Rogers on land: they're not making it anymore. The asset value of precious metals is that their supply is (theoretically) constrained by the high costs of mining. Bitcoin is similar. But the intrinsic utility of the good is close to nil. A dollar bill has little intrinsic value, or, if you prefer, a $100 dollar bill. It's a piece of paper, ink, and anti-copyright features. The production cost is a factor of regulatory limits on production. Gold and silver have some utility, but this is generally less than is reflected in its exchange value. Diamonds are a case of induced scarcity, though with a few other twists which tends to inflate the retail value while affording virtually no resale value. The added value by virtue of being money is referred to as seigniorage:
the difference between the value of money and the cost to produce and distribute it.
What's key is the "story": not all rare things are valuable, but all valuable things are rare. The key to creating a market for a given asset class is to convince people that other people are convinced of the value. It's a bit of a circular definition. Some assets have value ascribed to them. I've previously discussed what gives money value, in particular the United States Dollar. There are five key aspects:
It is legal tender: debts incurred must be considered legally discharged when paid in dollars, at least within the United States.
It is the required form of payment of taxes. That is, some 40% of total US economic financial turnover is in the form of tax obligations.
It is the global reserve currency. International debt settlements are generally paid in U.S. dollars.
It is the global payment standard for petroleum. That's about $3.1 trillion in global payments again, creating a use for dollars by every oil-importing nation.
It is the basis of paying off debts denominated in dollars, including consumer, mortgage, educational, and other loans.
Buy land. They ain't making any more of the stuff.
-- Will Rogers Other asset classes are real, in the sense that they're tangible, with real estate being a classic example. In Smith's time, the value of land was largely based on the produce one could derive from it: crops, lumber, cattle, fish. Perhaps wind or water power. In urban economics one learns that the value of housing (whether rented or sold) is based on the earning potential and travel time associated with it -- generally housing costs fall as one moves further from an urban center. But a secondary factor of housing is as an investment, though as many critics has pointed out, the long-term performance isn't particularly good, the carrying costs are high, the asset can be highly illiquid (especially when it's carrying a mortgage valued more highly than the property itself). In some areas title may be difficult to establish -- Hernando de Soto and Niall Ferguson discuss this in their respective books The Mystery of Capital and The Ascent of Money in the context of South America, and the resulting difficulties and alternative conventions. One interesting conclusion is that surplus profits of labor (or of business) tend to be subsumed by increasing housing (or office / store-space) costs.
These are also consistently undervalued. Any resource that's being extracted or consumed at rates greater than its replenishment is effectively an extractive good. The typical examples are minerals and mining, and fossil fuels, but this can include other and nominally renewable resources: topsoil, freshwater, groundwater, rhinoceros horn, timber, topsoil, fisheries.... The market price is set by the access price: how much effort it takes to extract the resource, but not a depletion allowance for the fact that the removed unit(s) will not be restored. The latter is a suggestion of many authors, including Herman Daly. It's interesting to note cases of societies which were formerly based on extractive technologies which have run through the entire resource and have lost their former wealth. A classic instance is the island nation of Nauru, briefly the wealthiest nation on a per-capita income basis during the 1980s due to deposits of phosphate rock -- bird guano -- valuable as fertilizer. Its 9,000 inhabitants on 21 km2 now rely on revenues for running a detention center for the Australian government. It's also served as a tax haven and offered passports to foreign nationals. The export land model of Jeffrey Brown describes the dynamics of oil exporting nations as domestic consumption rises to exceed total extraction capacity. Some analysis of the Arab Spring revolves around falling oil extraction in Egypt, Syria, and Libya as contributory causes, though a prolonged drought in Syria has also been mentioned. Cataloging a list of other nations formerly based on exported natural resource wealth could prove illuminating.
Overconsumption of Luxury Goods
As a counterpoint, there are products obtained unsustainably for which the market price is high (though possibly still undervalued). Rhinoceros horn would be an example, whale meat, and tropical hardwoods others. Often within what's a globally small market -- rhino horn is largely valued in south-east Asia and China, whale meat in Japan -- there's a significant social signaling status (Veblen good) for the product. Paradoxically, price is itself a signifier of signaling value, and total quantity demanded, while in excess of replenishment factor, is such that increasing the cost of the good doesn't reduce overall demand (or at least not sufficiently to avoid exhaustion or extinction of the source). Arguably the price is still too low (there should be an extinction/exhaustion premium), but even with increasing prices due to scarcity, the market response is not rational. Moreover, the value ascribed these goods isn't intrinsic to their practical application but to social signalling status. That is: a cheaper replacement would be inferior simply on the basis that it's cheaper, and hence, a weaker signal.
Information vs. Assets
The most striking aspect of Mason's Postcapitalism lecture is his juxtaposition of information goods, in which scarcity drives prices to zero, and of financial assets, in which an ascribed value increases the worth of an asset above its intrinsic value. But more critically:
The key contradiction in modern capitalism is in this emerging contradiction between free socially produced abundant [information] goods, and a system of monopolies, banks, and governments who are forced, in order to survive, to behave desperately to maintain this information asymmetry.
That is: Facebook or other service providers retaining proprietary control, and often, secrecy, over their APIs. There's an intrinsic fight between the network, information goods, and the hierarchy, proprietary and material goods. I further see the need for the financial system to see ever further growth, and interest payments, which a largely information-based economy is unlikely to provide.
In summary ...
I don't want to title this section "conclusions" because, generally, I'm far from them. I do hope this proves useful (and not too personally embarrassing to me) for further discussion / exploration on where and how value is ascribed and attributed.
Looking For Peer-Review On This Upcoming Bitcoin Course
Hi Guys, We are in the process of developing a comprehensive economics of bitcoin course for people to increase their understanding of bitcoin as a money system and also as a technology. I thought to post this here today because we are seeking feedback and peer review on this course as it is currently in pre-launch. More than anything, I would like to hear what interests you about the current course outline and what problems you are looking to solve/areas you are looking to learn about are. In order to serve a specific target market, we deliberately excluded anything which was focused deeply on the mining aspect of cryptocurrency and instead am focusing on what an investment manager, economics researcher, entrepreneur, writer in the bitcoin space would be interested in. Bitcoin mining and cryptocurrency development may come in the form of later courses, but for now we want to be very specific around the investment/technology potential of the bitcoin payment system. This will be a paid course. If you are interested in a free course, we already put together an Introduction to Bitcoin Course. If you are interested in learning more about this course and registering for it at a 50% discount, look here. Here is the course outline: Monetary Characteristics
Bitcoin Money Supply
21 Million Hard Cap
Money Stock Velocity
Bitcoin Is Backed By Time Itself
Characteristics of Sound Money
Bitcoin Violates Principle of Fungibility
Bitcoin vs. Gold
Trade In The Digital Economy
John Nash’s Ideal Money
Price Stabilization of Bitcoin
Antifragile Nature of Bitcoin
Gresham’s Law & Bitcoin
Block Space as a New Commodity
Bitcoin May Become A Global Reserve Instrument
Sidechains & the Lightning Network
Money Is Now An Image
Embedded Bitcoin Mining
Blockchain Technology as the Blueprint for an Internet of Things
Political Implications of Cryptocurrency
Historical References to Bitcoin
Source Code as Law
Evolution of the Corporation
Tax Avoidance Potential of Cryptocurrency
Denationalization of Money
Bitcoin Will End the Nation State
Incoming Surveillance of Bitcoin
Zero Marginal Cost Society
Open Bazaar: The Internet’s Decentralized Marketplace
What would you want to see in an Economics of Bitcoin Course? What kinds of products/courses would you be willing to pay for? Thanks for reading and keep up the good fight.
A General Summary for John Nash’s Proposal: Ideal Money and its relation to the ethereum hard fork.
The following is a general summary for the proposal “Ideal Money”. The suggestion here is that the ICPI or consumption index, that John Nash spoke of and wrote of, as a possible ideal basis for backing a currency, is truly only a theoretical side street used to abstract a solution proposed by him and referred to as Ideal Money. In order to understand this point and the purpose of his side street we will outline a few key factors of the proposal. First we must necessarily make a quick note of Hayek’s essay “The Use of Knowledge in Society” in which he explains the fundamental problem of economics lies in solving the ideal distribution of useful commodities . Hayek not only describes this problem in great detail, but also a very clever machine we might use to solve it: the entirety of free markets as a pricing mechanism. Hayek is careful to explain no other subset of the markets, let alone an individual, could do this so accurately:
…the “data” from which the economic calculus starts are never for the whole society “given” to a single mind which could work out the implications and can never be so given. The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess.
Interestingly, at the end of the lecture Ideal Money Nash admits there is a parallel line of thinking between Hayek and the proposal of Ideal money:
…after consulting with some of the economics faculty at Princeton, I learned of the work and publications of Friedrich Von Hayek. I must say that my thinking i apparently quite parallel to his thinking with regard to money and particularly with regard to the non-typical viewpoint regarding the functions of the authorities that in recent times have been the sources of currencies.
We must keep Hayek’s solution to the market pricing problem in mind in order to understand the proposal “Ideal Money”. The initial consideration from “Ideal money” can be summed up from the following excerpt:
…”ideal money” currencies could be arranged for by using an appropriate index of the prices of internationally traded commodities.
We can compare this point with a concept from Adam Smith’s TWON in which he explains that excess monies printed beyond the value of the commerce it represents, necessarily returns to the banks in exchange for a medium that better represents the underlying commerce and/or might be traded beyond the reach of the paper money:
The whole paper money of every kind which can easily circulate in any country, never can exceed the value of the gold and silver, of which it supplies the place, or which (the commerce being supposed the same) would circulate there, if there was no paper money. If twenty shilling notes, for example, are the lowest paper money current in Scotland, the whole of that currency which can easily circulate there, cannot exceed the sum of gold and silver which would be necessary for transacting the annual exchanges of twenty shillings value and upwards usually transacted within that country. Should the circulating paper at any time exceed that sum, as the excess could neither be sent abroad nor be employed in the circulation of the country, it must immediately return upon the banks, to be exchanged for gold and silver. Many people would immediately perceive that they had more of this paper than was necessary for transacting their business at home; and as they could not send it abroad, they would immediately demand payment for it from the banks. When this superfluous paper was converted into gold and silver, they could easily find a use for it, by sending it abroad; but they could find none while it remained in the shape of paper. There would immediately, therefore, be a run upon the banks to the whole extent of this superfluous paper, and if they showed any difficulty or backwardness in payment, to a much greater extent; the alarm which this would occasion necessarily increasing the run
In relation to modern day Keynesian economics Nash, in a curious and backhanded way, points out such an over printing of money, verses the underlying value it represents, effects “quality” in the gresham’s or “ideal-ness” sense:
The idea seems paradoxical, but by speaking of “inflation targeting” these responsible official are effectively CONFESSING…that it is indeed after all possible to control inflation by controlling the supply of money (as if by limiting the amount of individual “prints” that could be made of a work of art being produced as “prints).
This relationship highlights the concept for a new standard for measurement-a currency’s supply in relation to the underlying commodities/value it represents:
…its was the observation of a new “line”…for “central banking” functions relating to national currencies that gave us the idea for the study of “asymptotically ideal” money.
However Nash also notes the difficulties of implementing this standard:
…although that scheme for arranging for a system of money with ideal qualities would work well…it would be politically difficult to arrive at the implementation of such a system. …for the government of a state, acting on its own independently of other states, to rationally contemplate the evolution of the inflation rate for its currency towards zero there are clearly some very relevant considerations relating to tax revenue expectations.
This levates the possibility for a very interesting solution proposed by Nash:
…it occurs to me to think that that which is not achieved by a grand action of establishment by “fiat” may alternatively tend to come into existence as a consequence of a process of evolution.
Since only the markets can properly price commodities, and since ideal money functions in relation to an ideal basket of commodities, then only the markets can determine optimal currency supply. It stands to reason then, in order to rein in the suppliers of each respective (Keynesian/central bank) currency towards an ideal policy standard, one simply creates a market for the currencies. By using the pricing mechanism Hayek spoke and wrote of, the “players” of the markets naturally sort out the value of each currency (with respect to the relationship highlighted by Nash and Smith). Consequently players in the great game of central banking/monetary policy control are FORCED to participate in a “survival of the fittest” market environment:
“Keynesian” players in this game have natural opponents (or co-players, beyond zero-sum perspectives) who are interested in not being themselves “outsmarted” by those who control the options that determine, say, the quantity supplied of the national currency. And so the various currencies managed with “inflation targeting” would be comparable by users or observers who would be able to form opinions about the quality of the currencies. And what I want to suggest is that “the public” or the users, those for whom a medium of exchange functions as a basic utility, may develop opinions that are critical of currencies of lower “value quality”. That is, the public may learn to demand better quality of that which CAN be managed to be of better quality or which can be manged to be lof the lower quality observed in so many of the various national currencies in the 20th century.
Furthermore Nash notes, a standard that is as decent (or better!) as comparable present day standards in this respect, will necessarily evoke such evolution:
I think of the possibility that a good sort of international currency might EVOLVE before the time when an official establishment might occur. To be quite respectable, in a Gresham-advised sense, money needs only to be AS GOOD as other material commod-ities that might be hoarded. Now the possible area for evolution is that if, say, an inflation rate of between 1% and 3% is now considered desirable and appropriate in Sweden, then, if it is really controllable, why shouldn’t a rate between 1/2 % and 3/2 % be even more desirable?
Because of bitcoin, as a decent (but not necessarily ideal!) benchmark (and especially since it is exchangeable in nearly every country), the result of market competition is that any currency wishing to survive MUST evolve to better represent it’s respective underlying ICPI:
Starting with the idea of value stabilization in relation to a domestic price index associated with the territory of one state, beyond that there is the natural and logical concept of internationally based comparisons. The currencies being compared, like now the euro, the dollar, the yen, the pound, the swiss franc, the swedish kronor, etc. can be viewed with critical eyes by their users and by those who maybe have the option of whether or not or how to use one of them. This can lead to pressure for good quality and consequently for a lessened rate of inflationary deprecation in value.
Therefore, the solution for connecting currencies to an (ideal!) ICPI happens without actually ever determining an ICPI or any formula or implementation for it:
It seems possible and not unlikely, however, that if two states evolve towards having currencies or more stable value as measured locally by national CPI indices that then also these distinct currencies would tend to evolve towards more stable comparative relations of value. Then the limiting or “asymptotic” result of such an evolutionary trend would be in effect “ideal money” but this as a result achieved without the adoption of anything like an ICPI index as a basis for the standard of value.” …intrinsically free of “inflationary decadence”..a true “gold standard”, but the proposed basis for that was not the proposal of a linkage to gold
The impossible trinity still holds as impossible, however EFFECTIVELY “Ideal Money” solves the problem humanity has been prevented from overcoming by it. There is then an asymptotic approach to global stability-a true monetary standard!
The metric system does not work because french chefs de cuisine are constantly cooking up new and delicious culinary creations which the rest of the world then follows imitatively. Rather, it works because it is something invented on a scientific basis… Our view is that if it is viewed scientifically and rationally (which is psychologically difficult!) that money should have the function of a standard of measurement and thus that it should become comparable to the watt or the hour or a degree of temperature. …this standard, as a basis for the standardization of the value of the international money unit, would remove the political roles of the “grand pardoners,”…
The conclusion outlined in this writing is that the new standard of “ideal-ness” whether solely theoretical or not, isn’t bitcoin per se, but rather a theoretical (or future!) money who’s supply and monetary policies functions in a stable and predictable relation to its’ underlying ICPI. This theoretical Ideal has been shown as impossible to reach in design yet effectively and naturally achievable with the implementation of a universally exchangeable money that has a truly competitive predictable and stable nature in the “Nashian” sense (ie bitcoin).
…my personal view is that a practical global money might most favorably evolve through the development first of a few regional currencies of truly good quality. And then the “integration” or “coordination” of those into a global currency would become just a technical problem. (Here I am thinking of a politically neutral form of a technological utility rather than of a money which might, for example, be used to exert pressures in a conflict situation comparable to “the cold war”.) So here is the possibility of “asymptotically ideal money”. Starting with the idea of value stabilization in relation to a domestic price index associated with the territory of one state, beyond that there is the natural and logical concept of internationally based value comparisons.
In turn (and in time) this evolution will naturally cause each currency (that survives), to asymptotically approach stability and predictability in relation to it’s respective underlying ICPI. Lastly since bitcoin does have an interesting relationship to Nash’s proposal of ideal money, what is further curious is Nick Szabo’s seamless tying together of money with computer science, telecommunications and networks:
Metcalfe’s Law states that a value of a network is proportional to the square of the number of its nodes. In an area where good soils, mines, and forests are randomly distributed, the number of nodes valuable to an industrial economy is proportional to the area encompassed. The number of such nodes that can be economically accessed is an inverse square of the cost per mile of transportation. Combine this with Metcalfe’s Law and we reach a dramatic but solid mathematical conclusion: the potential value of a land transportation network is the inverse fourth power of the cost of that transportation.
Which is exactly what Nash hoped and predicted we might eventually do:
…since we are so dependent on our use of it and so much controlled and motivated by the wish to have more of it or not to lose what we have we may become irrational in thinking about it and fail to be able to reason about it like about a technology, such as a radio, to be used more or less efficiently. …money itself is a sort of “utility”, using the word in another sense comparable to supplies of water, electric energy or telecommunications. …we can consider the quality of money as comparable to the quality of some “public utility” like the supply of electric energy or of water.
I am not at all anarcho-libertarian. This is just straight up basic (global) economics.
One of the major factors of the optimal reference point for (Keynesian) money is the predictability of the commodity in relation to its cost of production. THIS finalizes bitcoin as the thing that does what gold does FAR better than gold. Gold isn't valuable because it is shiny, its not shiny (I mined gold underground). There is two important phenomenon we are witnessing and I want you to watch them every single day. Governments (or rather central banks), are ever increasingly being forced to produce "money" of a higher quality. This is taking the value out of things such as gold and oil which typically work as inflation hedges. You will continually see the demise in the price of gold and a continued lack luster oil price. The prices of these commodities will NOT come back. Because as bitcoin becomes more relevant and prevalent people will only consider "running" to IT as their inflation hedge. But there will also be less and less demand for such a hedge as any of the surviving currencies being produce will NEED to have at least a quality that is evolving towards the stability of bitcoin (in relation to its monetary supply, idealness, and gresham's law).
extension-blocks/sidechains & fractional/coin-cap/demurrage (Re: Let's deploy BIP65 CHECKLOCKTIMEVERIFY!) | Dr Adam Back | Oct 07 2015
Dr Adam Back on Oct 07 2015: Micha I think you are correct, I dont think extension blocks (or sidechains for that matter) can allow soft-fork increase of the total Bitcoins in the system, because the main chain still enforces the 21m coin cap. A given extension block could go fractional, but if there was a run to get out, the last users out will lose, or they'll all take a hair-cut etc. So presumably users would decline to use an extension block with fractional bitcoin. I mean you could view it like say an exchange (mtgox?) that somehow accidentally or intentionally creates fictional Bitcoin IOUs in it's system, eg in some kind of pyramid scheme - that doesnt create more Bitcoins, it just means people who think they have IOUs for real Bitcoins, are fractional or fake. With an extension block or sidechain furthermore it is transparent so they will know they are fractional. Relatedly it seems possible to implement a sidechain with advertised demurrage, with an exit or entrance fee to discourage holding outside of the chain to avoid demurrage. There are apparently economic arguments for why people might opt in to that (higher velocity economic activity, gresham's law, merchants offering discounts for buying with demurrage Bitcoins, maybe lower per transaction fees because say miners can mine the demurrage). However that is a different topic, again not changing the number of coins in circulation. Adam On 7 October 2015 at 08:13, Micha Bailey via bitcoin-dev <bitcoin-dev at lists.linuxfoundation.org> wrote:
As Greg explained to you repeatedly, a softfork won't cause a non-upgraded full node to start accepting blocks that create more subsidy than is valid.
It was an example. Adam Back's extension blocks proposal would, in fact, allow for a soft forking change that creates more subsidy than is valid (or does anything else) by hiding one block inside another.
Maybe I'm missing something, but wouldn't this turn into a hard fork the moment you try to spend an output created in one of these extension blocks? So sure, the block that contains the extension would be considered valid, but unupgraded validators will not update the UTXO set accordingly, meaning that those new TXOs can't be spent because, according to their rules, they don't exist.
The Law and Business of Bitcoin and Other Cryptocurrencies Geoffrey Miller David Yermack Law School Stern School of Business We propose a class on Bitcoin and other alternative payment mechanisms. Interest in this topic has exploded over the past five years, as Bitcoin and an increasing pool of competitors have risen in value and gained increasing acceptance as payment devices. Advocates for ... the Gresham’s Law that makes less used the currencies whose value is tending to a revaluation, given that these currencies tend to be maintained as a store of value; the birth of substitutive cryptocurrencies which can reduce the use of bitcoin Over the last few years there have been a number of papers and blog post on Gresham’s law and bitcoin.Most of these have rudely proclaimed that bitcoin will die because of Gresham’s law–ironically, it will be fiat currencies that will die because of that law, not bitcoin. This is because the real value of fiat money is always going to be lower than the real utility value of bitcoin. Even if bitcoin worked better, it is in a Catch-22 because of Gresham’s law, the nostrum that bad money drives out good. Given the choice of spending inflationary government-issued money or something which holds its value, everyone would spend the bad paper stuff and hoard the bitcoin. Bitcoin & Gresham's Law - the economic inevitability of Collapse Philipp Güring & Ian Grigg October-December 2011 Abstract. The Bitcoin economy exhibits remarkable and predictable stability on the supply side based on the power costs of mining. However, that stability is challenged if cost-curve assumption is not solely expressed by the fair cost of power. As there is at least one major ...
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