[118377] in Cypherpunks
Re: b-money economics #2
daemon@ATHENA.MIT.EDU (Adam Back)
Sun Sep 26 12:08:15 1999
Date: Sun, 26 Sep 1999 16:50:10 +0100
Message-Id: <199909261550.QAA00553@server.cypherspace.org>
From: Adam Back <adam@cypherspace.org>
To: ravage@einstein.ssz.com
Cc: cypherpunks@cyberpass.net
In-reply-to: <199909252200.RAA27171@einstein.ssz.com> (message from Jim Choate
on Sat, 25 Sep 1999 17:00:07 -0500 (CDT))
Reply-To: Adam Back <adam@cypherspace.org>
Jim writes:
> [...]
>
> > 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.
Too few mints could be a problem -- but mostly from the government
regulatory perspective. What you want is a way to buy b-money
anonymously. The best way to do that is to produce it yourself.
So a more secure, but less convenient solution is to buy b-money
accelerator hardware yourself.
Failing that you want the mints to accept paper cash. No point having
pseudonymous, fully linkable system if you then link your pseudonym to
real identity whilst buying b-money with a bank check.
Really you would like to prevent people investing too much in
accelerator hardware -- for example by changing the collision function
frequently. However you can't really do it -- there are only so many
constructs you are likely to use, and relatively general purpose
collision generators could be made (albeit at higher cost).
But I don't think it's too bad a problem anyway, the mint with the
best accelerator hardware can't charge too much, or more competition
will start up.
> Are you saying that a b-money auction house will require yet a 4th
> party to sit in judgement?
Undefined. I wouldn't say so, auction protocols don't need a 4th
party, eg sealed bids, or normal interactive bids, only require a
broadcast channel.
Wei says:
: Appendix A: alternative b-money creation
:
: One of the more problematic parts in the b-money protocol is money
: creation. This part of the protocol requires that all of the account
: keepers decide and agree on the cost of particular computations.
: Unfortunately because computing technology tends to advance rapidly and
: not always publicly, this information may be unavailable, inaccurate, or
: outdated, all of which would cause serious problems for the protocol.
:
: So I propose an alternative money creation subprotocol, in which account
: keepers (everyone in the first protocol, or the servers in the second
: protocol) instead decide and agree on the amount of b-money to be created
: each period, with the cost of creating that money determined by an
: auction. Each money creation period is divided up into four phases, as
: follows:
:
: 1. Planning. The account keepers compute and negotiate with each other to
: determine an optimal increase in the money supply for the next period.
: Whether or not the account keepers can reach a consensus, they each
: broadcast their money creation quota and any macroeconomic calculations
: done to support the figures.
:
: 2. Bidding. Anyone who wants to create b-money broadcasts a bid in the
: form of <x, y> where x is the amount of b-money he wants to create, and y
: is an unsolved problem from a predetermined problem class. Each problem in
: this class should have a nominal cost (in MIPS-years say) which is
: publicly agreed on.
:
: 3. Computation. After seeing the bids, the ones who placed bids in the
: bidding phase may now solve the problems in their bids and broadcast the
: solutions.
:
: 4. Money creation. Each account keeper accepts the highest bids (among
: those who actually broadcasted solutions) in terms of nominal cost per
: unit of b-money created and credits the bidders' accounts accordingly.
> There are several other factors here, such as the global (and
> non-anonymous) b-money database,
B-money is not anonymous -- it is pseudonymous, which means that it is
anonymous but transactions are linkable.
> 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.
Teh bidding will result in a profit margin the market can bear being
the resulting price. Note some mints will make more money than others
if their hardware is more efficient.
> > 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.
No it won't.
> Trading a $1 bill for $.99 (or $1.01 for that matter) as a matter of
> course [...] will cause the value of the money to be nothing.
All it means is that you make a profit, or take a loss (.01 loss or
.01 profit). Credit card merchants get charged between 2 and 6%
commission -- which just goes to show that the key feature of a
payment system are liquidity and acceptance.
> > 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.
Maybe with fiat money they don't make a "profit", but the people
printing the bits of paper have to eat, it's just concealed by the
government.
> 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
You're confusing cost with value again -- something which costs money
to product doesn't necessarily have a value in excess of the
production costs.
> Foreign exchanges don't MAKE money, they EXCHANGE it.
Foreign exchanges do exchange money of different currencies. They
take a commission and spread to cover their costs which is where they
make their profit.
> 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.
Why would anyone do this?
> 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.
The foreign exchange rate reflects the demand for the currency.
> > 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.
But there are no taxes in b-money.
> I assure you the mint in Dallas, Tx. does not bid against the mint
> in Denver, Co.
Who cares whether they do or don't; we're talking about b-money mints,
not fiat money mints.
> > 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.
Don't follow that. Clearly than can be more than one mint -- in fact
anyone can be a mint, and be a mint anonymously.
> > (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.
Just observing that the most efficient way to mint b-money is with
custom hardware. If the demand is high enough, it will be worth
investing in the hardware.
> 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.
Any one can mint it, but the community as a whole agrees on the
current exchange rate of collisions to b-money units at the begining
of each time period.
> 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.
anyone can print as much b-money as they wish to print -- if they
print to much they won't be able to sell it, which doesn't seem to
present any problem -- there will be economic incentives for them to
slow down.
> If the number is larger then inflation will devalue the token and
> more must be generated in order to cover the exchange rates.
yup it will devalue the token, which will mean they'll stop producing
pretty damn fast.
Adam
