Subnostr

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?

a source familiar with the matter 1y ago

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.

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Discussion

a source familiar with the matter 1y ago

To elaborate on the Yarvin point: he doesn't understand the difference between saving and investment

mrclownworld 1y ago

When you say, mining become uneconomic and the chain abandoned, how exactly do you mean?

mrclownworld 1y ago

Great points by the way, just trying to understand how you see that potential outcome playing out

a source familiar with the matter 1y ago

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.

mrclownworld 1y ago

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.

Scurvydog 1y ago

Blah blah blah blah blah

a source familiar with the matter 1y ago

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.

mrclownworld 1y ago

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.

a source familiar with the matter 1y ago

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?

mrclownworld 1y ago

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

mrclownworld 1y ago

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

a source familiar with the matter 1y ago

Contrast our monetary determinism earlier in this conversation

mrclownworld 1y ago

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

a source familiar with the matter 1y ago

Do you also enjoy eating the menu rather than the food?

mrclownworld 1y ago

In that analogy, what is the menu and what is the food?

mrclownworld 1y ago

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

a source familiar with the matter 1y ago

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.

mrclownworld 1y ago

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)

a source familiar with the matter 1y ago

How do you notarize something on the blockchain without op_return?

mrclownworld 1y ago

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