Dollar-denomination is meaningless in stocks and evaporating in bonds. If I own an own field, who cares whether you count its value in dollars, gold or bitcoins?
What is a "sat"?
Discussion
If you own a field, its value is rapidly appreciating in dollars, holding steady in gold, and declining against bitcoin.
Which of these denominators one uses in their head determines the opportunity cost of owning that field versus owning the denominator asset.
If one denominates with the dollar, it’s a no-brainer to own the field instead (whether you need to use it or not). If one denominates in gold, it might be 50/50 (you’ll own it if you need to use it, but maybe not if you don’t). But if one denominates in Bitcoin then it becomes a huge waste to own the field (unless you absolutely need to use it).
Obviously the extreme deflation of Bitcoin prices we’ve seen so far will slow down with time, but it’s designed to always be deflationary. If most people come to denominate with this deflationary asset, their mindset will become deflationary (don’t own things unless you need them). This would remove most if not all of the monetary premium in those other things (because people are not hoarding those things in lieu of the denominator asset).
A world denominated by the dollar: you’d be crazy not to own scarce things regardless of whether you need to use them
A world denominated by gold: you should own scarce things you need, maybe some you don’t, but you’re good owning mostly gold
A world denominated by bitcoin: nothing is scarcer than Bitcoin, so unless you absolutely need to own something to use it, just own bitcoin instead
Money is ultimately a psycho-technology, a tool humans use to denominate value. A weapon is any tool that can inflict damage, and many things can be a weapon. Money is any commodity that can effectively denominate value, and many things can be money. There are typically trade-offs in the characteristics of a weapon, like range vs durability for example. Money always has trade-offs in these properties too, between ease of transaction, fungibility, scarcity, amount of adoption, etc.
You arguing that gold is the only true money is a bit like arguing that swords are the only true weapon.
Bitcoiners are trying to argue that gunpowder has been discovered and although we are currently wielding muskets, the groundwork is being laid for a future AR-15.
Back to the analogy - the denominator a society uses most widely IS their money, and that society’s commerce reflects the realities of that money. Just as the safety and security of a society are the emergent result of the dominant weaponry.
I know from our previous conversations, this analogy is one you’re actually much better versed than I am in. Do you think it holds any water?
I think military determinism is a good analogy for monetary determinism, but I don't agree that you've understood monetary determinism.
With electronic exchange, we can use anything as a unit of account and claims on that anything as a medium of exchange. There's no reason we couldn't resolve electronic transactions in oil futures, or Bitcoin ETFs, or Bitcoin, or Gold ETFs, or AAPL shares. Those all work perfectly well as digital instruments. They're all countable and have a fiat price.
In a world of efficient electronic transactions and trustworthy digital claims on real resources, the question of money comes down (in my view) to durability. If I'm going to hold a physical asset, what rots least? And there the answer is gold, for purely electrochemical reasons.
In a world of inefficient electronic transactions and untrustworthy digital claims on real resources, the question of what to use for electronic transactions comes down (IMO) to trustworthiness. And here Bitcoin is much better than fiat. I've repeatedly observed that Bitcoin looks quite sane when compared to fiat.
I am very much influenced in my thinking on money by the Austrians (especially Menger) and Yarvin (who in economics is a pseudo-Austrian). See: https://www.unqualified-reservations.org/archive/john_law_safehaven Basically, I think Yarvin is right to claim intertemporal difference (the fact that I am given resources by my employer this Friday but I would like to buy chicken tendies next week, or 50 years from now when I retire) as the main driver in the selection of money/currency. Unlike Yarvin I deny the primacy of relative interest rates (because you can borrow any asset and sell it in whatever is the going currency).
I strongly disagree that Bitcoin is inherently deflationary. I think the rate of supply growth is decreasing (well, to the extent that we pretend supply is nonzero). But that's still inflationary. More units are being added to the "money" supply, which is inflating with every block mined. If you're referring instead to the fiat price, keep in mind that the decreasing reward sizes (and lost wallets) reduce the supply of available Bitcoins, not the demand. Price is the product of both.
I think eventually we will either see Bitcoin "mining" become uneconomic and the chain is abandoned, or we will see fiat collapse and in the rubble people will prefer something tangible and indisputably valuable rather than a speculative digital asset.
Also, I'd just like to mention again how much I hate the psyop-ness of all the bitcoin terms. These aren't coins, you're not mining, stop using pictures of gold coins with a B on them, and get off my lawn.
To elaborate on the Yarvin point: he doesn't understand the difference between saving and investment
When you say, mining become uneconomic and the chain abandoned, how exactly do you mean?
Great points by the way, just trying to understand how you see that potential outcome playing out
I think Bitcoins are worthless, and therefore can't go on gaining "value" forever, and therefore won't. So how does it end?
One possibility: If there's a rapid decline in Bitcoin's fiat price relative to electricity and computer equipment, this state of affairs reduces profit for calculating the next token. Obviously this will drive transaction costs up to compensate, but if the price spike is large enough we should see a decreased volume of transactions. This can lengthen the time needed to reach the next difficulty adjustment, prolonging the state of computational scarcity. If people sell in an attempt to get whatever value they can out of the tokens, this would likely further suppres the price, drive up transaction cost, and lead to a death spiral.
Another possibility: The value of Bitcoin drops below the point at which the maximum target / minimum difficulty is profitable, driving up transaction costs, possibly to prohibitively high levels.
If the value of Bitcoin plummets, then the profitability of mining drops, then miners drop out, and the remaining miners become more profitable. The difficulty adjusts and the issuance rate remains stable.
If the value soars, the profitability goes up and new entrants enter the mining game. Then the difficulty adjusts and the issuances rate remains stable.
I don’t understand your second scenario at all. The price falling makes transactions prohibitively expensive? Do you mean the price of bitcoin falls to where no one can mine it profitably? That era already came and went and it did not lead to collapse of the value, quite the opposite.
Also, your opinion that bitcoins are “worthless” is just one opinion, there are 8 billion others that affect whether bitcoins have worth or not, and currently one is worth ~$48k.
I think you might be misunderstanding the difference between miners producing blocks and users submitting transactions, as well as block reward versus transaction fees. At least you’re mixing up the terminology and your meaning is unclear.
Blah blah blah blah blah
the difficulty adjustment takes time... that was part of my argument... if calculation activity drops the blocks take longer to calculate and the difficulty adjustment takes longer to occur
If discovery of new tokens is slightly unprofitable, transaction fees will take up the slack and difficulty will adjust over time. If discovery is tremendously unprofitable it can exceed the tolerance for users to pay the higher transaction fees.
Fees are not affected by the profitability of mining, but the other way around.
Your theoretical point about the difficulty adjustment is interesting. In the case of a sudden -99% drop in hash power the very beginning of a new period, the difficulty adjustment period could go from 2 weeks to 200 weeks. That’s interesting to imagine but it would just cause a backlog of transactions that would make each block more profitable to mine, incentivizing new participants to come in and mine, reducing the block time. And all of this would of course resolve itself when the adjustment period finally ended.
A super massive -50% drop in hash rate would only double the block time to 20 minutes and the period to 4 weeks before adjusting the difficulty.
This is a really interesting thought experiment, but like many things in bitcoin, it seems mathematically improbable.
reward tokens insufficiently profitable to calculate implies that for calculation to happen fees must go up
I don't think a backlog of transactions can incentivize more calculation except by bidding up the fees... isn't there a limit to how many new transactions a single block can contain?
That’s exactly how a backlog of transactions incentivizes more hashing (more precise term than calculation). Block production slows down, meaning more transactions bid for the next block, meaning the fees they bid go up.
In our current epoch, the block reward is bigger than the fees, but this will change much sooner than people realize (10-20 years from now if demand for blockspace simply remains constant)
There is a supply and demand relationship for blockspace, with a hard limitation imposed by the difficulty adjustment.
The difficulty adjustment also causes the blockchain to be a reliable notarization service - 10 years of blocks can only be made over 10 years. And that’s really what this whole system is - an (effectively) immutable notary
Another way of saying this is “you may think Bitcoins are worthless, but humanity disagrees”. Luckily value is something you can practice at the individual level so you’re free to have your own opinion but in the case of money, the best one is the one that will afford you the best spending ability in the future and that depends on the psychology of others, so your determination of what to successfully use as money is beholden to what other people think, whether you like it or not
Contrast our monetary determinism earlier in this conversation
I looked back at what you wrote - I don’t think you realize that the electronic exchange of Bitcoin is not the exchange of an IOU for something but rather it’s the exchange of the thing itself. And verification is something the receiver can do themselves
In the present world (and in the theoretical world suffering from collapse), the tools needed to verify any amount of bitcoin is real are an order of magnitude less costly than the tools needed to verify any amount of gold is real
In Bitcoin and only Bitcoin, the map is the territory
Do you also enjoy eating the menu rather than the food?
In that analogy, what is the menu and what is the food?
If you mean the menu is the digital token of something and the food is the actual thing that token represents, then Bitcoin is the first time ever that the menu is the food
A scarce entry on the ledger of an effectively immutable notarization service is the informational representation of something as well as the thing itself
OP_Return is not in the whitepaper but was added years later in 2014.
Would you say that Bitcoin was economically illiterate when it was created but they fixed it by adding this extra message thing? which Bitcoiners argue is irresponsible to actually use...
However, op_return messages burn bitcoin, which means if everyone (eventually) converts all their bitcoin to op_return messages, there will be no more incentive for everyone to keep duplicating/validating these records and they will become insecure.
That’s incorrect. You can burn bitcoin if you want to with OP_RETURN but you can also use it without burning it (sending 0 to the unspendable address). The fee you pay to miners doesn’t leave circulation.
OP_RETURN was added to discourage other data storage schemes on the blockchain. People were already recognizing and utilizing the immutability of the chain to store non-financial data, and they’re still doing that to this day with ordinals.
OP_RETURN didn’t introduce the idea of storing other data on the blockchain, it made it orders of magnitude more efficient (storing hash proofs instead of the data itself, and allowing nodes to prune the output as unspendable)
How do you notarize something on the blockchain without op_return?
You don’t need to burn coins with OP_RETURN. You can send 0 to the OP_RETURN and just pay the fee to include the transaction. No coins are “burned” (removed from circulation), and your 80 bytes of data is on the blockchain forever.
There’s also this ordinals hack but don’t ask me how it works, it seems like a passing fad to me due to cheap fees, like satoshi dice was for example
Also thanks for the zip but you didn't answer my question
What IS a sat?
It’s a cryptographically provable and definite unit on a ledger that can be “owned” in the sense that it can be discretely reassigned only by knowledge of a specific private key (secret huge number) and it can be used to by space in an upcoming block of entries on said ledger to inscribe any information you choose, by rewarding the producers of that cryptographically valid block.
I agree it’s complex and intangible, but it’s still definite and unforgeable. And it is the only valid payment mechanism for the immutable record keeping provided by the blockchain.
You can say “what IS a sat” but that’s only a gotcha question in the same way that “what IS zero” is a gotcha question
You’re free to deny the existence of something intangible because it lacks physical instantiation but I’m also free to use it to solve problems
The point where the rubber meets the road, where the intangible meets the physical universe, by the way, is the physical energy cost required to guess large numbers (ie cryptography). For gold, it’s the physical energy cost to find/produce more physical atoms of the metal in the physical world. For bitcoin is the physical energy cost to find/produce new valid blocks on the ledger using machines operating in the physical world.
In other words I agree with your observation that limitation by the physical universe is a desirable aspect in money, but I think you fail to see the way that Bitcoin actually does meet this criteria
How much does zero cost?
The problem with Bitcoins is not the scarcity - I think they are even more scarce than you do :)
The problem is demand - why should anyone want these digital ledger units? Only because other people do... and why do those other people want them?
There are plenty of examples of pure information that has a value, otherwise no one would ever be paid to do research
Value is a subjective quality that something can have, whether it is tangible or not, but physicality is what enables the scarcity of a thing. The paradox of Bitcoin is that it is purely informational and yet scarce (such a thing has never existed before)
Owning a Bitcoin doesn't tell me anything I didn't already know