I hate to bore people with more Bitcoin stuff. But I need a platform to express a point I’m trying to make on Twitter long form.
I appreciate this is only my opinion. Given it contradicts the opinion of someone like Marc Andreessen — who is obviously a much better authority on monetizing digital protocol systems than me — I appreciate it’s going to be hard to digest by some people.
But the point I’m trying to make is that Bitcoin’s “store of value” value is entirely disconnected from the value of the Bitcoin open-ledger system.
The former’s value is transitional – the product of speculative inflow into a scarce synthetic asset that has no utility, or mutual interest holding users together other than its capacity to be pumped & dumped via the conventional speculative ponzification effect.
This value is entirely dependent on wider economic conditions. If interest rates on conventional currency go up to 5 per cent, the risk of sitting in a zero-yielding asset like Bitcoin begins to outweigh the potential benefits. It’s an economic preference game. End of.
It’s true that unlike gold or commodities, Bitcoin’s value cannot be disrupted by new supply. This gives it a theoretical advantage. But that advantage is meaningless because there’s nothing stopping substitution into a different asset altogether if and when the price gets too high. Just because Bitcoin regulates its own supply doesn’t make it immune to the laws of supply and demand, and those laws state when something gets too pricey demand falls, and substitution begins to make sense.
Seigniorage flows to a new asset entirely.
In something like a currency system that incentive is heightened if the distribution of wealth within the original system gets more unequal over time. After all, it makes much more sense to take a punt on pumping and dumping a new substitute at a certain price level, for much larger relative rewards, than being a late entrant into an overly pumped network.
Anyway, I’ve discussed all these flaws on numerous occasions.
Ultimately, if the zero rate environment persists, bitcoin will be diluted by ever more currencies that come to market. When there are so many altcoins in circulation that the whole thing becomes farcical .. we will see a collapse in confidence in the whole altcoin system. After all, an economic environment where anyone can get purchasing power just by imagining an altcoin meme that then becomes popular enough to create a worthwhile network, is the equivalent of a free money effect. I’ve also called it endogenous money supply explansion, via a form of decentralised QE.
It’s not the government printing money, it’s citizens printing their own money instead. Except that all this company competes over the same underlying goods and resources.
I’m a believer in abundance, but I don’t think we’re at the point of “free stuff for anyone with an imagination and an ability to create a meme” just yet.
Consequently, as more and more altcoin units compete for purchasing power of real-world stuff, you’ll get a) a potentially destablising inflation effect and b) a gresham’s law side-effect. To be able to draw seigniorage, new coins will have to offer something more than existing zero-backed coins. You’ll consequently get issuers promising redemption against all sorts of things. Until finally you begin to replicate the Weimar notgeld system.
Of course, it’s possible the economy can stand the broad money expansion associated with altcoins for a relatively long time before. But the moment money supply overexpands relative to the number of goods and services available, the moment people will withdraw from altcoins in favour of superior stores of value or those that guarantee redemption of something concrete.
The real economic value of Bitcoin is associated with the open ledger system. But this is not something which IMO can be successfully monetised by the Bitcoin system or any altcoin system. If and when the asset value of Bitcoin collapses, so does the value of the open ledger system because its value is entirely social.
This is because the open ledger system does not have independent value outside of the underlying asset it is applied to. It is a universal gift. It’s like the benefits associated with living in a country that has a fairer and more equitable constitution than one that has a less fair one. A democratic constitution versus a sovereign totalitarian one. People have simply agreed to do things a better way in one country than the other.
The ledger system is a method for passing around pre-existing value units. It is not comparable to Twitter or Ebay or whatever platform.
A) it is not proprietary b) it cannot be monetised with advertising or data sales (because the data is openly available to everyone) c) because any attempt to monetise it depends on reducing the collective benefits of the system to users and passing them over in concentrated form to specific parties.
Remember, what makes the ledger system attractive in the first place is that it takes out the middlemen who skim a nice revenue (or rent) from every transaction conducted in the digital transaction economy.
At the moment these middlemen operate like highway robbers, or toll keepers, demanding a cut of every transaction/passage made.
What Bitcoin does is circumnavigates these guys by making it appear that it’s created its own exclusive alternative infrastructure network. You get to pass through the protected corridors of Bitcoin, thanks to a collaborative protection network.
At the moment those corridors are funded via exclusive membership rights to that network. Because the network will only ever have x amount of membership rights, that makes the network appear very valuable. It’s making access scarce.
BUT!! that means the more people want to use the network, the more diluted the membership rights for new entrants get. Their equity in the system eventually becomes entirely insignificant compared to those who were able to obtain full rights. That creates a hugely unequal system which arguably renders many users worse off on a relative social basis than when they were being exploited by the highway robbers.
But here’s the thing! It turns out the ability to dodge the highway men isn’t dependent on an exclusive right to a parallel corridor network at all. It’s dependent on a collaborative camouflage technique that’s available to anyone who bothers to organise themselves and adopt the system. There is no exclusivity to the system. Anyone can learn how to dodge the highway men.
That means you can use your pre-existing value system as usual, and dodge the highway men accordingly without turning to the Bitcoin corridor network. Let’s say hypothetically being able to do so depends on everyone agreeing to sing some sort of siren song that sends the highway men to sleep. As long as everyone is singing, everyone is protected.
Importantly, you can’t monetise this system unless you try to make it somehow exclusive to a small group. But this is impossible because once people know about the system, anyone can adopt it. Thus all value based on the idea of “exclusivity” is false. Also once you start skimming profits from the system, you’re just reintroducing the inequity of the highway men to begin with.
The system either benefits everyone or provides zero innovation. This is why IMO it is not monetisable.
What’s valuable is being able to teach everyone the song that needs to be sung to dodge the highway men, and have them agree to keep doing so via a shared mutual interest that rewards all equally.
It’s a network solution to a problem. As soon as any part of the network is rewarded to a greater degree than another part of the network, the incentive to stay committed to the network diminishes. And yet you need as many people to be committed to the network as possible to draw the maximum benefits. Thus, an equitable distribution is in the network’s interests. It’s game theory.
Any attempt to exploit users or rent extract, collapses the system.
The likes of MA say they aren’t invested in Bitcoin but in the supporting infrastructure and the scaleability of the networked approach. But this doesn’t make sense either. There is no monetisable scaleability. It’s a collaborative and thus entirely non-monetary (i.e. voluntary) economic eco-system. There is no competitive rivalry advantage.
The same doesn’t apply to Twitter or Ebay, because these guys are actually hosting and building a proprietary network corridor and drawing value not from network membership rights or the technique but the usefulness of their exclusive networks to advertisers, data gatherers, merchants, and those who are prepared to pay for more dominant exposure within their corridors/infrastructure. Or outright pay for access, but not on membership/equity grounds, but on a use basis.
It’s an entirely different model to say the least.