Topic: Proof of Stake from an austrian school perspective - page 2. (Read 2796 times)

And the are more costs: network bandwidth, CPU cycles for transactions and blocks verification, memory to manage UTXO. But all these costs more or less proportional to cost of storage, in particular they are negligible now.

That is interesting. Funny to see that the risk of hacking can be seen as a feature from austrian perspective.

The cost of storage, if comparable to Bitcoin is negligible nowadays. I think cost of storage will get cheaper faster than the blockchain can grow.
But I agree, the risk of being hacked is a non negligible cost. (In fact, this cost also exist and is not negligible when one store gold or paper money...)
From the history of Banking the cost of protection was the main problem paper money solved from gold. (originally gold certificates)
Gave me food for thought.

There are costs in inserting a transaction in NXT blockchain as well as in any other PoS blockchain. The most obvious one: the transaction is stored forever, and storage also costs. A less obvious one: it's impossible to mine NXT without at least minimal exposure to risk of being hacked, your wallet must be online, your privkeys must be unencrypted somewhere in memory, it's safer to be offline, even if you lease your stake, you have to go online for some time.

Nice explanation. That makes sense on the meaning of intrinsic value where the blockchain itself holds key to everything.

Thanks a lot, I've read some Max Weber works long times ago and loved it, so I'll definitively read that with interest.

However, as far as Marx is concerned, he is not on the Chartalism side, since he values gold according to his labour theory of value https://www.marxists.org/archive/mandel/19xx/marx/ch06.htm.
There is no sign he believes in the stamp of an authority as having any value.

[update]
Finished reading it, great link which expose the confrontation between Metallism vs Chartalism !
However, "Metallism" becomes a misleading term with Bitcoin, since the really important thing for metalism believers are whether the commodity violate regression theorem.

I argue that Bitcoin does not violate it (as well as any POW crypto), but is not a metal either.
However, a POS crypto violate it.

Nevertheless, again, cool link.
[/update]

Read this paper.  It's topic is about Weber and Mengers's opinion of Knapp vs von Mises.  Chartalism vs Metallism


http://home.manhattan.edu/~fiona.maclachlan/maclachlan26july03.htm

Mises traces the origin of Gold as a medium of exchange not because it is a metal, but because it had a use value with money characteristic.
As I said, I think the main problem with austrian is not with metalism but with intrinsic value (use value) of the medium of exchange.

I am not familiar with Marx writings, however, to what I though, he was against centralization of power in a State. (the communism as we know it, has nothing to do with Marx ideal)
Am I wrong ? This would explain why some people try to frame Marxism as "left libertarian".
However, Marx believed that the value of something is derived from the labour that got in its creation. (labour theory of value)
Again, I'm not familiar with his writing, so if you knows more, I'd like to know.

As I said, I just borrowed the name of NXT for the sake of explanation, I clearly said that I did not know it.
But your point does not change the consequences of the conclusion given the premises. Replace NXT by whatever crypto name with POS.


I think it was in "A Monetary History of the United States" of Milton Friedman, that I read a similar argument about the effect of discovery of new mine on the gold market.
History repeat itself.


A commodity don't need to be "Backed by" to become medium of exchange from Austrian perspective, however it needs to have a use in the first place as you said. (the so called intrinsic value, or use value)
I think this use is "inserting data in the blockchain".

I think such thing can only happen with POW. Because, if it cost nothing for the miner, why would it not include transactions at the end of such queue ?
An altruist miner would include a transaction without fee, because it cost him nothing. Fees will become useless, and thus, such crypto would not have the use value of "inserting in the blockchain".

Agree, but the question is : what make them willing to buy in the first place ? Response : It is marketability made possible because of the "use value" of the commodity.
If the commodity have characteristic of money, then it will emerge as medium of exchange.

If Bitcoin is backed by anything and has value it is backed by mathematics, I know you claimed you didn't want to use the term intrinsic value but your conversation pretty much went that way anyway because in order for something to be traded it has to have a reason to be used in the first place.

We are at a strange point in history where we have an entire financial system and political system made up of I believe madmen and lunatics. In such a world where they can create money at a whim and destroy entire countries by printing some currency more than they should I believe that a currency that which follows a set logic and doesn't deviate from that has ended up being in high demand.

Don't get me wrong, I like precious metals, I plan to buy them myself and I understand the Austrian perspective on them, however with a possible new space race on the way there are plans by space companies to actually mine asteroids for precious metals. What's going to happen when all of that cheap metal enters the market? Even gold won't necessarily be safe despite its rarity because suddenly mining will become worthwhile again as there is a plentiful supply of metals out in space as opposed to the very expensive and dangerous business of mining from the earth's crust. Bitcoin cannot suffer from this problem because it makes itself more difficult to mine as more computing power is added to the network and there will only be 21 million coins in existence and in circulation at one time, we currently have no idea how many tonnes of assumed precious metals exist in the universe, gold might actually end up being quite common and we may end up having to peg our currencies to something far rarer.

Adding to my argument in regards to the logic of Bitcoin, it's far easier to send money across oceans, there is no regulator of Bitcoin, miners do not discriminate based on occupation, gender, ethnicity or ideology, the fees are incredibly cheap as well and there is no personal information required in order to do it, just a randomly generated address connected to a digital wallet.

There isn't really one reason that Bitcoin and cryptocurrencies have value, but as with anything that is traded, in order for it to have value someone must be willing to buy it and for me that's all that matters in the long run. By the way, in regards to proof of stake, it all depends on how it's done, for instance, I wouldn't be very interested in a coin that has inflation built in and rewards stakers that way, but what some do is actually just give a chunk of the miner reward away to stakers in return for holding the coin long term rather than selling it.


If you don't include a fee into the transaction it gets bumped back to the end of the queue so to speak so if a person ignored the fee they would end up not getting their coins sent for several years. It's very annoying when people say on interviews who actually should know better that there are no fees in cryptocurrencies when that just isn't true, the thing is the fee is just so tiny it doesn't make much of a dent into the amount your sending.

About NXT, something you are wrong.
Nxt's block reward is zero, it's just only transaction fee as all BTC be mined.
So if the miner accept all transactions without fees, he will get nothing.
So you are totally wrong.

I think you should investigate the 2 main philosophical factions of money chartalism vs metallism.

Austrians fall into the metallism camp.  In the chartalist camp you have people like Marx, Keynes, Say, Mill, Smith,  all of MMT and post Keynesians

I think Austrians would say no crypto can work because it's not backed any commodities.  Chartalists would say crypto can't work unless by authority of state to accept for tax payments

I am making this post, not for starting a debate on whether intrinsic value is important or not, but as an experience of thought about why, from an Austrian school perspective Proof Of Stake can't work.
I do not want to debate whether the austrian school is right or not, I want you to evaluate if, given my premises I reach a coherent conclusion.

When an Austrian is skeptical about Bitcoin, he points out the lack of "intrinsic value" in Bitcoin.
Since I don't like this term that is vague, I will borrow the term "use value" of Mises instead.

An Austrian argues that Rice, Tabacco and Gold have a purpose outside those of a medium of exchange.
You can eat Rice, you can smoke Tabacco, and you can make Jewel with gold.
The use value makes the commodity highly marketable, which develop it as a candidate to become a medium of exchange.
Then, if this commodity is durable, portable, divisible, uniform, non falsifiable knows as "characteristic of money", it develops naturally as a medium of exchange.

There is no doubt about the "characteristic of money" in Bitcoin, which are higher than any existing alternative.
However, for the Austrian, the lack of "use value" of Bitcoin means that it can't develop as a medium of exchange.

But there is a clear use value of Bitcoin : Bitcoin allows you to insert a row in the Blockchain.

Even if Bitcoin is worth nothing as medium of exchange, inserting a row in a database that is global, can't be censured and can't be altered has a value.
This is the "use value" of Bitcoin.
As you know, such database would offer perspective for multiple industries, not yet exploited but soon will be. (justice, finance, insurance, payment and remittance)

The utility of the blockchain is rarely opposed, but if you admit its value, from an austrian perspective you also give "use value" to Bitcoin, since you can't insert without fees.
Surely enough, individually you can give no fees but if everybody do it, miners would more and more be reluctant to insert you, and this will be even worse when there will be no block rewards.
Even an altrust miner will make you pay the fees, because if he does not, he will loose money and then would not be able to pay the electricity bill.
Meaning that on the whole, fees, and thus use of Bitcoin will be mandatory to make the Blockchain lives.

And if Bitcoin has use value and the characteristic of money, then it will develop as medium of exchange.
So, from Austrian perspective, you can't admit blockchain utility without seeing Bitcoin as an emerging medium of exchange.
If you want to stay coherent and Austrian, either you deny blockchain utility or you accept Bitcoin as a kick ass medium of exchange.

Now, lots have been said about Bitcoin mining being "wasteful", and that Proof Of Stake would be "greener". (see https://en.bitcoin.it/wiki/Proof_of_Stake and http://bitcoinmagazine.com/6528/what-proof-of-stake-is-and-why-it-matters/)

I argue that from Austrian perspective, if a crypto is not "wasteful" (implying Proof Of Work), it can't have any "use value" and thus thrive as a medium of exchange.

Let's imagine a currency like NXT on Proof Of Stake. (It should be noted that I know nothing technically on NXT, but I just need a plausible name for sake of clarity)
You will mine a block with a % of your holding. IE, if you hold 1% of all NXT, you'll have 1% of mining the block.

Like Bitcoin, you would earn a block reward + transaction's fees.

Now my question is : why would a payer include a fee in its transaction ?
If there is no cost in inserting a transaction in the blockchain, an altruist miner would accept to process all transactions without fees. (for the benefit of the network and for protecting his stake)
If such is the case, there is no "use value" for NXT, thus (from austrian perspective again) it would not develop as a medium of exchange.
In turn, the "Stake" of miners would not worth anything, collapsing the network.

However when mining is costly (proof of work), if the miner want to survive without block reward, fees will be mandatory to pay the bills.
As the payer, Bitcoin is useful because it is needed to insert in the blockchain. As the miner, it is needed because it cost them real work to insert in the Blockchain.

Note that this explanation is also coherent with the labour theory of value of Marxians, which argues that gold is valuable because it requires work to extract.