[118343] in Cypherpunks
b-money economics
daemon@ATHENA.MIT.EDU (Adam Back)
Sat Sep 25 16:41:11 1999
Date: Sat, 25 Sep 1999 21:21:42 +0100
Message-Id: <199909252021.VAA06729@server.cypherspace.org>
From: Adam Back <adam@cypherspace.org>
To: ravage@einstein.ssz.com
Cc: cypherpunks@einstein.ssz.com
In-reply-to: <199909251300.IAA25558@einstein.ssz.com> (message from Jim Choate
on Sat, 25 Sep 1999 08:00:47 -0500 (CDT))
Reply-To: Adam Back <adam@cypherspace.org>
Comments on economics of b-money [1]
The price of a unit of b-money at any time is the market value of the
given quantity of commodities. Now this only affects the *cost* of
creating b-money, not the *value* of b-money. (The value of anything
is defined by what people are willing to pay for it).
People agree on the current cost of creating a given collision length
of hashcash, and from this arrive at a number of bits of collision
required to purchase a unit of b-money. Wei suggests that competing
mints would bid to arrive at a fair price.
People can also sell b-money to others for whatever the market will
bear. Mints or third party foreign exchange services will probably do
most of the buying and selling. (Private foreign exchange is
inconvenient and high risk).
Mints *do* need to make money otherwise there won't be any mints. But
you need competition to ensure that mints don't price gouge. (Bear in
mind that if b-money became at all wide spread, the most efficient way
to create b-money would be to use custom hardware -- with hashcash
this would be parallel SHA1 collision generating hardware. With
custom hardware there are high startup costs which present a barrier
to entry -- the mint operators must be able to recoup this cost plus
some profit).
If demand for b-money is low, people may sell it for less than it
costs to produce -- in this instance the mints would stop producing it
as they would be unable to compete. If demand for b-money is higher
than can be met by available b-money, the price goes up, and then it
again becomes worthwhile producing more b-money, and the mints will
print some more.
Adam
[1] http://www.eskimo.com/~weidai/bmoney.txt
