Bitcoin as the basis of a stable economy

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In the world of economics, nothing is more discussed, debated, rebounded, criticized, yet absolutely important, than the risk-free interest rate. It goes by different names (prime rate, FedFunds, LIBOR, HIBOR…), depending on your country, but it is essentially the minimum rate that you can earn with minimal risk, simply by locking in your funds for a period of time. This interest rate is normally essentially risk-free, as it is guaranteed by your central bank, by mandate from your government, and so until you anticipate the apocalypse, you can be sure that your funds can safely earn. interest at that time. rate.

However, to be clear, no individual can profit himself from the use of this rate, because it is in part only a target rate (in the case of Fedfunds) or an interbank rate ( in the case of -IBORs), but through a trickle-down effect, what that rate is will affect the going interest rate you encounter at your local retail or commercial bank (which is itself fairly risk-free). , but not as risk-free as the prime rate).

Needless to say, this unique metric is one of the main controls central banks have in managing a country’s economy, and by extension (especially in the case of the USD) the global economy, although ‘it is about a balance act of policy and economy going beyond the framework of this article and of this poor author. The need for a central bank to manage the economy of a country will be an assumption given here. From later articles I could have some sketchy discussions of an economy that is absolutely unmanaged (I’m sure sane money activists would love this) but it’s too nutty to break here, and it will only serve the purpose of ‘to harm. For now, let’s take it for granted that the need to run a national economy is at least in principle a laudable and honorable endeavor. Also, it’s not that hard to imagine that we would need some sort of stimulus to deter too many Elon Musk-level reclusive billionaires from simply accumulating their wealth and burying it somewhere in the ground, or worse, to convert everything to gold. , then drive it into the Mariana Trench.

This stimulus tool against excessive wealth hoarding is called inflation, and it is done by allowing banks to create debt and money (equally) for the public (presumably the part of the economy). population that suffers the most during difficult economic times). The incentive for banks to do so is largely controlled by the prime rate. After all, if banks can’t just put their reserves in reserve and earn lazy interest from them, then they will be forced to seek out those who will want to take out loans more aggressively to earn interest. Rightly so, those who take out loans will charge lower interest rates for doing so, as the prime rate determines all interest rates and, therefore, the collective appetite for risk in the economy. The only problem is that the control of preferential rates and interest rates becomes less effective, as most people put their excess capital in the stock market, or worse yet in cryptocurrencies. So much so that it is not as useful a tool as it used to be. Coupled with that is the corruptibility of our bankers, and you will soon see that the system might need a bit of fixing.

Okay, 512 words in it, and you’re probably wondering what that has to do with Bitcoin, as it should be. Well, it turns out that with all the technical breakthroughs Bitcoin (BSV) has made possible, the economic innovation of using a self-incentivizing proof of work system to reward infrastructure providers via transaction fees. , is in fact a brilliant, economical self-adjusting “anchor / gauge / regulator”.

Think about it. You cannot cheat the proof of work. There is NO useful by-product of the work, which means that your reward is purely representative of the earning capacity of transactional volume (fees) in the network, which is an indicator of economic activity. What does that sound like to you?

Probably nothing, I know. But for an economist, this is the sound of “Eureka!” Because it almost looks like a self-adjusting limiter, a feedback control circuit in a power grid, a governor in a steam engine, a carburetor[1] in your car. The exact tool central banks would like to get their hands on. After all, it’s not that direct control of interest rates can’t be a solution in theory – the problem is simply that in practice, the politics, nepotism, corruption, or foul mood that bad eggs have put on our Fed governor who in the morning is always a hindrance. It’s easy to play the hero, and lowering rates to “save the economy” doesn’t take a lot of courage, but few central bank executives have the nerve to be able to “do the right thing” to raise rates. rate when things look so good. So an automatic governance system would seem to be exactly what we all need, like that personal trainer at the gym who is just paid to yell at you while you do all the work. Something we can count on to do the hard work when our careless policy makers fail to get the job done.

The other aspect of proof of work is its fairness. It is arguably the truest value measuring stick that we humans have ever invented. Think about it, aside from owning gold, what other form of measurement of value has had the ability to be so unilaterally comprehensive, fair, measurable, and tamper-proof? A hash is a hash. You may have different costs for producing a hash, inherent in your business or political environment, but the hash is the same and can be used the same all over the world. I would say that apart from crude oil, coal, natgas, gold, silver (and maybe rice?), We have no other universally recognized measure of value. If we wanted to go more general, we would have to measure in watts (which is after all what energy assets are a proxy for).

Unfortunately, physics dictates that raw energy is not very easy to transport, and even more difficult to store. That’s why, historically, we’ve relied on gold (thank you Sir Isaac Newton for inventing the gold standard of silver! Utter Brilliance!… Oh, and that math thing you invented was pretty cool too.)

Imagine an economical system and a stable coin that bases its value on proof of work? Which is, according to BSV’s business model, an approximation of the amount of economic activity in the system. (Quite unlike how copy PoW coins like BTC do, in BSV you only need an amount of PoW proportional to the amount of transaction fees paid by business activity in the network Nothing more.

BTC is aiming for new records for wasted energy and global warming to make a few people richer.

While the energy efficiency of BTC gets worse and worse (current statistics show it consumes as much energy as Thailand), BSV uses only a tiny fraction of it. More importantly, the energy consumption of the BSV appears to be quite correlated with the amount of actual economic activity on the blockchain and does not appear to be affected by price speculation. Why? Because there is no need to compete to generate the most blocks, when 1 block can be unlimited in size. This is the main economic difference of BSV. Miners make money from fees and not just block rewards. In the long run, BTC miners will eventually switch to BSV mining, or just shutting down, because after the block rewards in BTC disappear, there will be no more desire to keep all those GWh burning farms in operation. creating 1MB blocks. The transaction fees will simply not be enough to support this extravagance.

The numbers are clear, BSV has a carbon footprint of around 0.5 kg of CO2 per txn. BTC about 864 kg.

In comparison, BTC is about 1000 times worse … about 860 kg of CO2 per txn according to this study. And it will only get worse as the price of BTC appreciates.

The more you think about it, the more it makes sense. If we had a totally green[3], a low-carbon system that could regulate the economy, adjusting the risk-free interest rate to control the appetite for loans and spending (which offsets economic exuberance), decoupled from politics and corruptible central bankers, wouldn’t it be worth looking into?

I think so, and I think some people[4]are already examining it. Needless to say, once you have an honest, neutral, fair, and global system like BSV, honest and intelligent people will think of brilliant ways to improve society. Just like good old Sir Isaac.

Jerry Chan – October 2021

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Remarks:

[1] I realize I’m dating because most of you young people probably must have checked Wikipedia for that term. In the good old days, engine control systems were ANALOGUE. No fancy fuel injection gimmicks or ECU chips that can fail. (Or take your car back)

[2] Carbon Coin Cap – https://coincarboncap.com/

[3] BSV as green technology – https://unboundedcapital.com/green-bitcoin

[4] Cambridge Cryptographic – https://www.cambridgecryptographic.com/

New to Bitcoin? Check out the Bitcoin for Beginners section of CoinGeek, the ultimate resource guide to learn more about Bitcoin, as originally envisioned by Satoshi Nakamoto, and blockchain.

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