Bitcoin Prime
Also know as collectors vintage bitcoins.
This is a crazy idea with no redeeming social value.
BitCoin is valuable only because people expect it to be valuable in the future. I am sure there is BitCoin bubble, but it wouldn’t be that strange for for something useless to be valuable. Cancelled stamps may be valuable. Old coins have numismatic value. Old coins hmmm … pity BitCoins are just numbers uh first recorded on a given date … hmmm
OK so I want to invent the Vintage BitCoin blockchain. The idea is that it is a subset of the BitCoin blockchain with only BitCoin awarded to miners before 2011. It would not be very hard to create this.
It is important that it remain a subset of the bitcoin blockchain so updated with edited down bitcoin blocks.
OK before going on here is the Bitcoin wiki (which is pretty much all I know).
To be even briefer, Bitcoin is just the bitcoin ledger, that is, a record of all bitcoin transactions. Each transaction has a payer, receivers and a number (an amount of bitcoin). Bitcoin is a quantity a measure — there aren’t identifiable bitcoins with serial numbers. In a valid bitcoin transaction the payer lists as “input” the transactionw by which he or she got the amount of bitcoin. These must not have been used as input before (you can’t spend the same bitcoint twice). A proposed transaction is sent out over the web and joins the pool of proposed (but not yet validated) transactions.
Bitcoint “miners” check transactions and form blocks of valid transactions. Then they do pointless math which is there just to slow down the creating of bitcoin blocks. The pointless math is that a block must be an approximate root of the bitcoin hash function which I will call F. I have to define a function G such that G(a,b) = F(a+b).
The block is a bunch of ones and zeros. the N+1st block starts with G(the Nth block) (this is important). then there are the valid transactions which were in the pool of proposed transactions. They are described with text and numbers, but it is all 0s and 1s on the web. The miner then claims a reward, so the block includes her identifier and the statement “receives 12.5 bitcoin”. So far the block is a huge number which I will call x. Then there is the “nonce” y which is any number such F(x+y) < epsilon. For very small epsilon it is very hard to find such numbers. It is very easy to check. Then the other miners all check the block. They check that it is made of valid transactions which have not yet been validated and that it is close to a root. The block is of the form (x,y) that is both the useful record of transactions and the pointless nonce are recorded separately. The amount of the award was originally 50 and is divided by 2 every 210,000 blocks. The difficulty epsilon is adjusted so that one block is added every roughly 10 minutes (after 2016 new blocks are made it is adjusted so that it would have taken an expected 2 weeks to make those blocks -- the hash function is well understood but not by me). The awards are the only way new bitcoin is created. To make a vintage bitcoin block, one has to check that transactions trace back to an award for a block made before January 1 2011. Sadly the vintage bitcoin inventor can't award bitcoin for making such a block. They can only be rewarded with a record of another quantity (I call it prime for the part of bitcoin prime which isn't bitcoin) which might or might not be worth anything. To make up for this, the difficulty of making vintage bitcoin blocks can be set to quite easy. Now I need to make a ledger of transactions of prime. I would put them in with the transactions of filtered bitcoin in the vintage bitcoin block (clearly marked). The modified program guarantees a fixed supply of prime which might be worth something. Also the vintage bitcoin might be worth more than plain ordinary bitcoin. This is totally pointless. Really a reducto ad absurdum of bitcoin. There is a rival blockchain to Bitcoin which forked off August 1 2017, so someone has been playing my sort of game (they have a justification, but I think they were mostly playing).
Seriously, what is the difference between bitcoin, Yap Island stone coins, and USDs? They have whatever value people say they have.
It is probably worthwhile distinguishing between a “bubble” and a “speculative bubble” here. So a bubble is whenever an asset has a value above its fundamental. It has long been known and accepted that the value of a fiat currency is a bubble, given that its fundamental is zero (not backed by anything), although in the case of a currency that exists in a paper or coin form, there is the value of that paper or metal, with the sign of a really super-hyperinflation being when a currency becomes “not worth the paper it is printed on.”
A speculative bubble involves price movements that are driven by expectations of future price movements in the same direction, with most people also thinking that the sign that a particular price movement is (or was) a speculative bubble being not only that it moved up in such a manner, but that it eventually went down as well in such a manner, usually pretty sharply and dramatically, although not always. The decline of the housing bubble was at about the same rate that it went up.
Anyway, it is possible to have a bubble that is stationary, it just sits there or does not move around much. A regular fiat currency like the US dollar is a good example, and the late Paul Samuelson famously independently developed the overlapping generations model idea to explain such stationary bubbles in a world of rational bubbles (Maurice Allais had beaten him to the punch on OLG about a decade earlier in French). Needless to say, with its wild movements, bitcoin is not a stationary bubble, but looks a lot more like a speculative one.
@Joel The US dollar is legal tender. If you owe the IRS money you must pay it in dollars. This means the dollar can’t be worthless. It is backed by a threat of force– you don’t pay dollars you will be arrested.
Yap Island rocks are part of a traditional culture. If you treat them as worthless, you are acting strangely (for a Yap Islander). The Bitcoin community is a bunch of people who raterly meet and trade as avatars identified only by each on having the key to a unique secret code.
You can see this. Exchange rates between different legal tender currencies don’t act like the Bitcoin/dollar exchange rate. There can be huge rates of change during hyperinflations but those are everywhere and always caes where the supply of one currency increases very rapidly.
As a matter of fact, the graph of the price of Bitcoin shows it is not like any currency which has ever existed (before). Actually I think the key that no one sets prices in Bitcoin.
@Robert,
So you believe the IRS sets the dollar exchange rate? Fascinating. That would be news to the world currency markets.
I do not believe that the IRS sets the exchange rate. I also don’t believe that the tooth fairy determines fiscal policy, and I don’t believe that Santa Claus is the Marshall of the Supreme Court. Finally I think you need to take a remedial reading course, because your reading comprehension level is extremely low.
You asked “what is the difference … ” . Hoping for a chance to educate someone who was ignorant, but capable of learning, I explained how they are different. Rather than admitting that your rhetorical question was answered, you claimed I had written something unrelated to what I had actually written.
I conclude that you are not only ignorant, but unwilling to learn. Also you are not only ignorant of monetary economics but have no capability to grasp logic. The fact that I noted that the dollar is legal tender doesn’t mean that I noted this fact (of which you amazingly seem to be ignorant of this fact (which is printed in plain English on every bill) does not imply that I asserted that every other observation in my reply is a logical implication.
I will not waste any more of my time reading anything your write. If I do not reply to something else, you should understand that this doesn’t imply that I couldn’t reply, but only that I didn’t read it.
To all I would note, Robert’s point about the need to have dollars to pay taxes in the US is related to, although not identical to, what is known as the chartalist theory of money, which MMT modern monetary theorists tend to strongly support. The hardline chartalist view, which dates to the 19th century, and which Keynes gave a brief nod to in his Treatise on Money, says that paying taxes to an existing state is the central and most defining function of money, with really nothing else mattering. Bob noted that dollars are indeed needed to pay taxes to the actual existing US government without going to that further extreme of a full-blown chartalist argument, which I suspect he does not accept, with this being in contrast with Yap Island money as he noted.
For those who have not had basic standard econ, the usual Principles level definition of money is something that fulfills three functions: a medium of exchange, a numeraire for expressing prices (or values), and a store of wealth or value. Of course, there are many things that perform that final function (including cryptocurrencies) without fulfilling either of the first two.
The chartalist view essentially focuses on a very specific form of the first one, usable as a medium of exchange to pay taxes to a government. This has led many of the adherents of that view to reject usual textbook stories about the spontaneous emergence in many societies, often without organized states or governments, of commodities that come to serve as media of exchange, from coonskins in parts of colonial America to cowrie shells in many societies around the planet, to cigarettes in prisons (an old chestnut as it were from now out of print Principles texts).
Barkley:
Thanks for the additional info.
Tulip bulbs come to mind as you stated the different forms of currency. In prison, packs of cigarettes are valuable commodities as well as Ramen Noodles, Swanson Chicken on special order days, etc.
@Robert,
I’ll happily compare my education and academic accomplishments to yours any day. Your idea of “educating” me is to call me names and attack my intellect. Shame on you.
@Joel oops I read your comment. You wrote “So you believe the IRS sets the dollar exchange rate?” then accused me of incivility ?
.
How odd.
You asked me to say how bitcoin is diferent from the dollar and Yap large stone money. I answered your question. You asseted that I must have claimed the 2 differences which I noted are cause and effect. I don’t know why
@Barkley The question I answered is how is BitCoin not like the dollar. As you mentioned, I didn’t make any claim that the first difference which I noted is central to monetary theory.
@Robert,
Please point out where I accused you of being “not only ignorant, but unwilling to learn,” having “no capability to grasp logic” and lacking in “reading comprehension.” Take all the time you need.
Just because I disagree with you doesn’t make me uncivil. You “answered” my question in the sense that you *replied*, but your answer wasn’t a good one, in my opinion. The fact that I disagree with you doesn’t justify your personal attacks and name-calling. I didn’t call you names or attack you personally.