[118347] in Cypherpunks
b-money economics (fwd)
daemon@ATHENA.MIT.EDU (Jim Choate)
Sat Sep 25 18:17:03 1999
From: Jim Choate <ravage@einstein.ssz.com>
Message-Id: <199909252200.RAA27171@einstein.ssz.com>
To: cypherpunks@einstein.ssz.com
Date: Sat, 25 Sep 1999 17:00:07 -0500 (CDT)
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Reply-To: Jim Choate <ravage@einstein.ssz.com>
> Date: Sat, 25 Sep 1999 21:21:42 +0100
> From: Adam Back <adam@cypherspace.org>
> Subject: b-money economics
> 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 market value of the commodities must also be expressable in b-money
tokens as well for it to work in the real world. It must be a two way street.
Under this definition you can't use b-money to purchase those commodoties or
else you end up in an inflationary loop. The fact that the commodity could
itself be a cache of b-money tokens is what causes b-money to fail. A
reasonable person does not pay $11 for a $10 bill.
If the cost of making b-money increases then its value decreases, contrary
to your assertion.
> (The value of anything is defined by what people are willing to pay for it).
The value of a thing (excluding emotional issues) is the DIFFERENCE between
what it takes to obtain or make it and what consumers are willing to pay for
it, it's ability to make profit for its previous owner.
> 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.
The problem is that it doesn't recognize the competition factor. Bidding
agents don't bid with the goal of keeping the competition in business and
this is a requirement for a b-money market. Are you saying that a b-money
auction house will require yet a 4th party to sit in judgement? As implimented
a b-money auction house will eventualy have only one b-money vendor, such a
monopoly is not un-important. There are several other factors here, such as the
global (and non-anonymous) b-money database, that make this protocol busted.
But let's focus on the bidding, the end result is that the lowest bid will win,
this means the value of the b-money token approach asymptoticaly the value of
W-s's it take to produce it, 1-to-1.
Also, how does the auction house gets it cut in b-money tokens? Would you
exchange a bucket of 100 $1 for a $101 if everyone was doing it (especialy
when the auction house was charging you $1 to do it)? The only reasonable
answer is 'no'. A resonable person asks "What can I buy now with my $100
that I suspect will be worth more later?". Exchanging pieces of green paper
for pieces of green paper won't allow anyone to buy commodities.
> People can also sell b-money to others for whatever the market will
> bear.
If I have $1 of b-money and sell it to you for anything other than the $1 that
it represents the market will collapse. Trading a $1 bill for $.99 (or
$1.01 for that matter) as a matter of course (I'm specificaly excluding money
collectors since they don't exchange the money and then use it to buy other
things; collectible money is usualy worthless in the current market, it's based
on perceived value based on rarity and not real world commodities such as 'how
many pounds of sugar can I buy with it?' - it's an emotional issue) will cause
the value of the money to be nothing.
> 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 don't make profit, they're not a business. Mints work by estimating
the current value of the commodities market as a whole and then examine the
amount of specie required to cover the interim exchanges of these resources
within the purvue of that mints market (we don't have a global specie
outside of physical quantities and since US money isn't based on physical
quantities it's a moot point). The money itself has no value, it's the
exchange of resources it represents that give it value. b-money on the other
hand has specific value because it represents a finite effort to generate
(and it doesn't cover the cost of exchanging the token from one party to
another, that takes W-s's as represented in your electric bill. The cost of
exchanging a normal unit specie is nil because users don't have to make it
themselves and the cost of me handing you a piece of paper is a lot less
than me handing you a digital token (I've got to get the harware and
software, learn to use it, upgrade it, repair it, you've got to do it too,
etc.).
Foreign exchanges don't MAKE money, they EXCHANGE it. Exchanging one
b-money token for another b-money token of equal value (w/ respect to the
b-money token itself) as if they had different value will cause the market to
collapse because of inflation. Currency exchange has the opportunity of making
a profit in only one of the two markets involved. If I exchang US $ for German
DM's the 'profit' is one way only and a result of the isolation of those two
markets and the difference in percieved value based on differences in life
style and resource availability. In addition one of the hallmarks of
currency exchange is never leave it sit idle or you lose your shirt. Once
you start exchanging you have to keep exchanging or else convert to real
commodoties at some point. Once the market becomes universal, as a b-money
market would force, such opportunities go away.
> Mints *do* need to make money otherwise there won't be any mints.
No, that comes from taxes and there is no concept of profit in taxation.
I assure you the mint in Dallas, Tx. does not bid against the mint in
Denver, Co. Once it's decided how much specie is required to support the
commodity exchanges the resultant quantity is split between the various
mints according to their capabilities. Neither do the mints in Canada and
Mexico bid against the US mints to print US money. It's a normal course of
things that governments run in the red, not the black. They owe more than
they're worth. The funding that enables mints to exists comes from the
taxation of exchange of resources and not the money they print to enable that
exchange. An individual $1 gets used many times, indicitive of its inherent
valuelessness in and of itself. What allows governments to continue to exist in
the red is the perceived value of their services, as long as its greater than
the deficit the government will remain stable (economicaly speaking that is,
usualy politicaly as well).
> But you need competition to ensure that mints don't price gouge.
Competition between mints in the same market doesn't exist unless you're saying
that b-money requires a priori the elimination of the current economic and
political systems. If so it's doomed for yet another reason.
> (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).
Before you can discuss what happens once it becomes widespread it needs
to be demonstrated that it CAN become widespread. This is a chicken and egg
problem.
You haven't been in a computer or electronics store in a while. No the
start-up cost for somebody to print their own b-money (not the amount needed
for an entire country) is not prohibitive. Besides after the 1st generation
of b-money printing presses are built the second generation will be
integrated and using off the shelf components significantly lowering the
cost of entry. The fact that current money class printing presses are
intentionaly rare is what keeps this from happening with our current money
(and color printers and such are making that problematic). So what if it
takes $100k of real money to get the hardware, you'll be printing off $1M's
of b-tokens in short order making up for it. The short term problems aren't
strong enough to eliminate the long term gains.
It's interesting that in some aspects of b-money the assumption is that the
market is multi-party and free and in others there is some 'hand of god' (I
assume that is some centralized authority like a national government). This
also raises some questions about it applicability in a real world market,
You can't have both individuals freely printing money and only some specific
entity authorized to do it at the same time. As currently implimented there
is no central authority to sign the b-tokens to make sure the amount
available is just sufficient to cover the commodity exchange in that market.
If the number is larger then inflation will devalue the token and more must
be generated in order to cover the exchange rates.
> 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.
Nobody has a demand for b-money, ever. What the demand is for is the
exchange of commodities the b-money allows. Nobody wants money in and of
itself, they want what it represents.
I'd love to answer your second email on this as well as carry this
discussion on farther but I've other priorities and it's starting to get
repetitive.
____________________________________________________________________
Error of opinion may be tolerated where reason is left
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Thomas Jefferson
The Armadillo Group ,::////;::-. James Choate
Austin, Tx /:'///// ``::>/|/ ravage@ssz.com
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