Excellent link Chase. It was a very interesting abstract, I might even read the full work later on. I recently read this
http://essay.utwente.nl/65677/1/Spenkelink_MA_MG.pdf in all of its 90 odd pages. It was quite interesting, but I didn't find any new material that most of us weren't already aware of, or solutions to the problems the crypto world must overcome that would help this community.
Myself, I'm less certain in the authors application of the "pretty" MV=PQ model for money demand. You see the author made no mention that the velocity of money means that the slower money transfers between accounts, the more of it will be required in the system to facilitate transactions.
Take for example your bank account and my bank account. If I wanted to send you some USD from my bank account, and our accounts were both in the US, I would expect the transaction to clear overnight into your account, meaning that money that could be travelling around the economy, is "stuck" in the system, and unusable until the time it clears. If I sent you $10, and you owed somebody else $10 that due on the same date, then instead of me sending you $10, and you then forwarding on that $10 to the next person instantly (a $10 velocity of money we can call it), the system would then require $20 (V = $20) to facilitate my payment to you, and your payment to the next person on the same night. This is all because of the "stuck" money.
In the digital currency realm this is completely different, I could transfer you 10 Dnotes, and you could send those same 10 Dnotes to the next person almost instantly, meaning we would only need 10 Dnotes in the system to facilitate our transactions, we essentially require half the amount of money in the system to facilitate the same transfer of value. This effect compounds the more transactions people make, so say a million bank transfers happen... well... we might then need 1 million times the money in the system to facilitate financial services, which means 1 million times the demand for additional units of dollars. Technically, one could argue that if everybody made transactions instantly, we would only really need say "1 Dnote x the maximum transaction amount in the entire system" to facilitate this value for "V" (Velocity). It would work in a similar manner to the "One-electron universe" theory put forward by Richard Feynman in 1940 that said that "all electrons and positrons are actually manifestations of a single entity moving backwards and forwards in time." For the crypto version, time was manipulated, but the blockchain can't go backwards like with the electron theory
.
To me this is one reason why we don't actually need that many total coins in the crypto universe (especially since each and every unit of account like a Dnote, is divisible any which way. In the future we will require smaller units like "mini-notes" that are worth like... 1/100th of a Dnote or whatever). It is not possible to chop up your 20 dollar USD notes and expect them to be worth anything, there will always be enough Notes in existence for everybody in the world. I hope I explained that okay. If anything, my thoughts above would suggest that there would be far less demand for notes due to "required velocity" if they are applied to the MV=PQ theory. I hope I've explained myself alright here, tried to give easy examples. I'm sure there are other people pondering the same thing out there, and one day we might come to some type of logical consensus. I'm not sold that V matters at all... yet. I also think people need to stop treating crypto economic theory in the same we have with our flawed fiat models!!!
My point here, is that the author made no mention that a crypto money supply wouldn't behave in the same way as a fiat one would. This fact is central to their argument of price volatility and demand for crypto, which I think would make their theory of money velocity incorrect. Those are just my thoughts anyway (but I'm not the one writing for coindesk ha!).
Other than that, the computer algorithms for changing money supply would be quite clever, so long as we don't have any type of "monetary policy" run by governments. When people hold onto their crypto in the expectation that it will appreciate, those coins are technically taken out of the system (since they will not be put onto exchanges or used to buy things), some would say that this would lead to an appreciation in a coins value because it pretty much works like monetary policy, where supply has been changed. I feel inclined to agree, but in this instance, I wouldn't attribute price changes as a result of the velocity ("V") part of the equation like coindesk authors seem to.
I think I've babbled enough, my writing has been interrupted before I got a chance to edit all the spots where I repeated myself and find all the insufficient explanations yadayada.
Hope everybody has a great Xmas. Thanks Dnotes team.
Thanks TeeGee. That was a great explanation and I definitely learned a few things. I have never thought about money being "stuck" in the system like that and I liked the way you explained it. We will likely see most people attempting to compare the crypto money supply to fiat for quite some time, as you said, or at least until they figure out it doesn't work the same.
As far as the "One-electron universe" theory put forward by Richard Feynman in 1940 that said that "all electrons and positrons are actually manifestations of a single entity moving backwards and forwards in time" part of your post goes, we'll have to save that for another day. My head still hurts from son trying to explain quantum entanglement to me weeks ago!
You're quite awesome community.
