Topic: rpietila public diary - page 8. (Read 86489 times)

Don't be silly, if there's ONE thing a democratic government is great at, its jumping on the train not standing it its way.


I'm just looking for the "real bills" definition now, but so far from your descriptions it sounds like essentially a bearer-owned futures instrument secured by raw materials.  Or in other words a publicly-issued currency backed by commodities (oil, energy, etc) and some concept of how much those commodities "reworked" into a product might be worth.  Essentially it is the creation of transient currencies because of issues and inefficiencies with the availability, portability, or quantity of the "standard" gold based currency.  
In that context, bitcoin ought to render it unnecessary, due to its transferability and divisibility.

On the other hand, real bills also act as a swing loan.  In this context they may be useful (to pair with bitcoin), but at the same time they increases risk and imply a trust relationship between the merchants.  So if a merchant or his customers do not NEED a swing loan, it is better to avoid them -- historically it seemed to be impossible to avoid both due to the scarcity of gold (it really isn't that divisible in practice) and the transportation risk/inefficiencies.

Note a "color coin" could work very well to represent a "real bill"...

First Class Bitcoin Supernode

- Sovereign ability to run, manage and develop the Bitcoin network in absence of any other entities.
- 24/7 monitoring, technical, and trading ability, connections with most relevant Bitcoin power centers, accounts in all relevant exchanges
- Global operation, capacity to set up activities in most jurisdictions with minimum lead times, access to all specialists (bankers, lawyers, tech) globally
- Able to generate its own funding indefinitely regardless of bitcoin exchange value, or backed by an entity wealthy enough to support the operations indefinitely in absence of cash flow from operations
- Minimum full-time staff in command&control structure: 5-10

Second Class Bitcoin Supernode

- Able to run, although probably not effectively develop, the Bitcoin network in absence of other entities. The end user of Bitcoin will notice if the service level falls to the second class. This will lead to delays and blackouts of important services.
- Real-time alerts in place to activate the relevant parts of the organization if something worth their effort happens in Bitcoinworld. Position management in multiple trading platforms, good connections to several other supernodes.
- Can project force to other jurisdictions, albeit with considerable effort and lead time
- Can function independently of external funding as long as Bitcoin's price does not totally collapse, (or has enough external funding to not care)
- Minimum number of dedicated permanent staff: 2-3

Third Class Bitcoin Supernode

- May or may not run a Bitcoin node, cannot likely summon the resources to fix the protocol if need be, may be entirely non-tech
- Actively follows what happens in Bitcoinworld. Reasonably well connected to at least some other supernodes.
- Mainly a local operation.
- Owns enough bitcoins, income-generating bitcoin or other businesses, or other assets, to continue operations at the desired level infinitely (note - the marginal cost of operation on this level is essentially zero)
- Minimum number of people: 1 part-time
- In order to be classified as a supernode, there either needs to be a good number of bitcoins in possession, mining capacity, bitcoin tradership, dealership or other business or publishing organisation.

Capability of a Supernode

The capability of a Bitcoin supernode can be expressed in a pseudologarithmic scale from 0.0 to 5.0., where
- 1.0 is an essentially perfect small operation
- 3.0 is the threshold of being classified as a supernode
- 5.0 is an interested newbie smart enough to understand the basics.

I have been trying to explain the transition of Bitcoin from the alpha/beta stage to the mainstream. I developed the supernode framework to give the reader some understanding of the magnitude of the change that we are undergoing. As I see it, any of the public power centers of Bitcoinworld, do not currently even qualify to the first class. This can be readily observed by the number of scams and hacks, and inadequate organizational and financial resources of most of the actors.

There are currently hundreds of organizations in the world, capable of developing a 1.0 supernode in 3-6 months, if they decide to enter in. None of the current (public) players possesses such an ability now, and even though many may be interested, their rate of capability increase (the time in days, to move one decimal in the supernode capability scale) is behind that of the potential new entrants.

2013 will be an interesting year, for the mainstream adoption and price appreciation of course, but also for some serious behind-the-scenes action. I realize that most people have a difficulty of understanding that bitcoin's price does not have a stable value between $0 and $300k (in fact I only myself realized it a week ago!), and because of this new understanding how the bitcoin power network functions, the probability of it going to zero is rather slim indeed. Seeing $115 ever again seems unlikely to me.

If the following poster quoted your comment in its entirety, I typically prune the conversation by deleting all the comments that were included in the quote.

I have deleted about 90% of all comments, including my own, if they were nicely quoted by someone else, whose comment I wanted to remain in the thread. [EDIT: IF this is hijacked so that the poster deletes his comment, which includes the only surviving part of some discussion, I will need to alter the method. Please don't delete your own comments from this thread, unless you are sure they would be deleted anyway by me.]

If the comment is not developed by anyone in about 24-48 hours, I typically delete it, unless there is great value.

If the comment is stupid, I instantly delete it.

Please continue posting, I appreciate the discussion between you, cypher & Qoheleth.

Julian Assange confirms my views (no, in fact I confirm his, and act on them...):


You will soon have an opportunity to buy bitcoins for 1/100 of their reasonable long term value!

But why wait, as you will be able to buy them for <1/1000 now? 

If Bitcoin continues its exponential trend of 26% value appreciation per month, it will reach the marketcap of gold sometime in 2016. Actually, 2012 was an aberration of the exponential trend (too slow). If we leave it out (it was ridden with scams and hacks, in addition to quiet accumulation by the by-now bitcoin richest people), we will be at $300 in less than 2 years.

For the bitcoin real economy, 30% or more per month is a little bit of a stretch. We were already experiencing the stretch 2 weeks ago: some people including me, got totally stunned because of the rapid value appreciation, and gave up working on the infrastructure that is required to keep up the growth. But Bitcoin corrects itself with unbelievable speed. I think we have a chance to resume the trend and take the old ATH sometime in May.

The infrastructure is also getting better at a speed of perhaps 20% per month, and picking up. I will have a fully functional (people, software, hardware, legal, financial) command center a month from now. Then the bitcoin network can no more be destroyed, since I alone can dev and run it, if all the others fail in the entire world (<- which, of course, I don't regard as probable, LOL). Expect more such supernodes to pop up at breathtaking speed in the weeks and months from now.

It is a far cry to believe that the current legal system can somehow adopt Bitcoin. A more probable scenario would be a complete dismantling of huge current power structures, such as the U.S. Administration.

It is helpful to think, the Soviet Union also dismantled itself 22 years ago. Now, that one was followed by a period of looting, but this time I do not expect such to happen. The information density in the world has grown exponentially ever since then - now we are heading towards a period of unbelievable personal freedom, liberty and prosperity, coupled with decreasing pollution and resource usage, if the command structures that hold sway over most of the world, just decide to end themselves.

If bitcoiners will be let to form their own legal systems, the real bills question can very well be settled in the next 2 years, before the currency stabilizes anyway. (As long as we are in the value appreciation phase, the real bills will have no chance to function.) If the P-T-B act to prevent this, the price of 1 bitcoin will easily overshoot to $millions range, as civilized trade will be difficult, and hoarding will be the main function of bitcoins.

I will be arranging a conference dedicated to this, probably in June. Admission will be limited, so keep an eye on this.

Here's the relevant PDF - the example is used as a fable about how real bills might have been invented.

I'm glad you found my explanation clear.

To be honest there were a couple times I also couldn't wrap my head around a particular point in his Econ 101 notes until I reread it a couple times. His choice of terminology is sometimes confusing - for instance, calling trussing up bonds as real bills "illicit arbitrage" when the real issue (as far as I can tell) is that they're disguising risky paper as risk-free paper.

he's very tall.  he must be getting up there in age, though.  at the time he was travelling around with that little Indian guy whose name i've been racking my brain trying to remember.  their big thing at the time was the gold basis.  as i said earlier, the Indian guy pissed off the Mises Institute last year with some critical comments against Mises.

stopped reading him for the most part the last couple of years since i've been into Bitcoin but also b/c he cut back significantly on the frequency of his writings for whatever reason (got tired of cruising by his website and not seeing anything new).  but he appears to be writing a bit more frequently in 2013, so that is good.  i'm trying to catch up on that right now.

the key concept i learned from Fekete was his theory on UST's and how they are causing a deflationary spiral.  i did a long post about this last summer somewhere here on the forum.  it's really key to understanding what's happening to the world today.  all i can think of when i ruminate over this concept is a huge black hole.

you'd be about 100 years too early.

the Real Bills Doctrine necessitates that there be a fixed money supply that is functioning as a stable store of value.  Bitcoin, as you know, is nowhere near that right now as we climb the asymptotic issuance curve and experience waves of price instability.  it also necessitates a freely flowing money supply; not one that is hoarded.

Real Bills also depend on lex mercatoria btwn merchants and is enforced in special customized courts.  Bitcoin is a long way from that.  lex mercatoria also assumes that underlying law and order exists within the traditional legal system; something that can hardly be used to describe what we have today in our financial system.  

stability is required for Reals Bills to function.

I have never seen him in real life. Many years back I wanted to have him come over to Finland to give a speech, and we had some contact concerning the plan. I was affiliated with a university back then. I think the visit would not have been the best return for his effort, so I don't regret that it never happened. Also I always wanted to go to his academy, but did not have the time. Well, since he is still alive, perhaps we'll have a chance to meet soon... Do you know, what does he think about Bitcoin, and does he realize that his theories can be applied to it?

The public articles have been duly digested also here 

So, I can vouch for you, for speaking the pure and unadulterated truth concerning real bills. It will be a kickass financial application when we get there!

Okay, I thought that might be the case. So basically the issuers of the real bills need to be trusted to make good on their promises to deliver the bitcoins/gold on the allotted date.

Open Transactions can easily be accommodated to produce these instruments, in fact it is ideally suited to it, since anybody can be an issuer of any asset. Adding a component of time to expiry is probably not a big extension since it is already done for the untraceable cash instruments.

Having a provably-backed instrument is another level of sophistication that is not needed generally for real bills then.

I think we can get something started here ...

You're close, but there's one thing you're missing: the whole point of real bills is to cover the non-existence or unavailability of the hard coin until it arrives (and the structure of the bill is such that everyone can be sure it'll arrive).

Let's take your oil example. You sell oil to people in London, but it's manufactured in Russia. There are plenty of people in London who want to buy oil, so even to someone on the opposite side of the world, it's pretty clear that if only you had some oil you could sell it right away. So you call someone in Russia and ask them how long it'd take for them to ship you some oil, and how much it'd cost. Now, let's say they say "okay, it's 1BTC a barrel and it'll take a week to get to you", but you don't want to dip into your cold wallet just to buy a barrel of oil that you'll immediately resell anyway. So instead, you write them a real bill for 1BTC "from sale of a barrel of oil" payable eight days hence. They receive the bill, and send the oil, which arrives in one week as scheduled, and you sell it all in a day, earning the 1BTC promised on the bill (plus whatever your profit might be). Meanwhile, as the barrel of oil makes its way to London, your real bill might be circulating who-knows-where. On the eighth day, as you sit in your shop with all the oil sold and your profits taken, someone in Brazil cashes in your real bill and you pay them the promised 1BTC.

The problem with cryptographically "proving" real bills is that their whole point is to keep people from having to tie up hard coin (gold in Fekete's examples, bitcoins in this discussion) to fund each step of bringing a fast-selling good to market. The ancient example he gave was a clothier - someone grows the cotton, someone spins it into thread, someone weaves it into fabric, someone tailors it into pants. If the pants cost 250 miniBTC, you'd need to tie up nearly a whole bitcoin to pay for the production of each pair of pants - the spinner pays the farmer for the cotton, then the weaver pays the spinner for the fabric, then the tailor pays the weaver for the cloth, and finally the customer pays the tailor for the pants. Without a way to give everyone in the supply chain an explicit cut of the final store price, goods in an industrialized economy (which tread many, many steps on the way to market) put an undue burden on the money supply as they travel down the path of production.

Okay, for use case then say I'm a buyer of oil.

1) i want to take delivery of oil in 30 days time
2) i issue a real bill, denominated in bitcoins that I can prove exist via the blockchain, to the producer(?) for the agreed quantity of oil
3) the producer takes the real bill and can sit on it or trade it for something else because basically it is as good as bitcoins
4) whoever is holding the real bill (are they generally a bearer certificate that can circulate?) show up on bill expiry date and takes delivery of bitcoins from the oil buyer account

Is that the essence of it or are there other subtleties?

If that is it, I'm pretty sure we can do this with a fairly simple extension to Open Transactions software with a new asset class and use things like multi-sig or locktimes, escrow or smart contracts to ensure that the real bill is a bearer redeemable instrument and etc. I.e. we can cryptographically remove the trust required of the real bill issuer by the bearers. Basically the real bill becomes a cryptographically secured token of exchange, with a provable backing of bitcoins, that will be released to the bearer on/after a fixed date in the future.

The idea is that real goods are moving through the chain from production to the consumer, and instead of each link in the chain needing to pay the previous link in hard coin (which is strictly limited in supply and can't expand/contract according to the current behavior of the marketplace), the person who will sell at the end passes a "real bill" denominated in hard coin up the chain, so that the increasingly ready-for-market good can then pass down the chain to the final buyer. Then, once the sale has occurred, everyone can cash in their real bills in exchange for their share of the hard coin that the buyer paid.

Obviously, in most cases, a real bill would be issued for a period other than 90 days - typically, just the amount of time needed to bring the good to market. But it's important that the period be short - at the very most one season - because real bills are only real bills if they represent the final steps to bringing a good to market, and furthermore they're only real bills if it's the kind of good which is certain to sell basically as soon as it gets there. It's too hard to have that kind of certainty when looking more than a couple months out (especially given that many of the goods financed by real bills are seasonal goods, which means if they don't sell in a couple months you'll have a whole year's worth of changing consumer sentiment before they get another chance).

(In case you couldn't tell, rpietila, I've had a chance to read some more of Fekete's "lecture notes" )

So as I understand it the monetary properties are that a company/trader issues a real bill with a promise to deliver the goods or the bitcoin in 90 days (60 days, 30 days, 7 days also options?).

Would someone mind spelling out specifically what real bills need to do in terms of payment, settlement, delivery schedules, etc?

i attended one of his seminars about 6 yrs ago in S.F.  it was great.  my own thinking has been influenced alot by his theories on money, gold, and especially UST's.

clearly, i disagree with him on where gold is headed but this only occurred after Bitcoin.

i can't remember the name of his other colleague that was there; the guy who pissed off the Mise's Institute last year and who has worked on the gold basis...

Understanding the exact mechanisms, how the great depression was caused, is a topic of deeper study, although I think professor Fekete is correct.

LOL I should have gone long bitcoins following the publication of my analysis, I kind of expected the price would rise  

Daytrading is difficult, though [EDIT: values in quote converted to mBTC, as is the norm here]:

TL; DR: How long can bitcoin's purchasing power go? I have seen pundits posting as high values as 1 satoshi == $1. I do not think this is possible, the realistic limit for a value of 1 bitcoin is $300,000 in 2013 dollars.

I think the largest possible long-term value for a bitcoin is reached, when all the civilized world is using bitcoin as the reserve currency, upon which the international trade rests.

As we all should know (albeit very few do), gold was used as a sole reserve currency after the hijacking of bimetallism in about 1873. The gold standard was suspended in 1914, following the outbreak of the Great War. The framework for its destruction was already started being laid in 1913, when the Federal Reserve was founded. The destruction was carried out piecewise following World War I, so that FDR in 1933 could blame the remaining vestiges of the gold standard on all of the world's problems, and order the gold confiscation of 1933, and the devaluation of the dollar by 40%. This caused the great depression of 1933-1941. They needed another war to lift the country from stagnation. We are in a similar precarious situation now, and an apocalypse can likely be avoided, only be quickly increasing bitcoin's value, which is why I post this essay.

During the gold standard, as well as both before and after it, the total stock of above-ground gold in existence, divided by the population of the planet, has stayed remarkably constant.

In 1913, there was 1.65 billion people and 31 000 tons of gold. It is 18.8 grams per person.
In 2013, there is 7.11 billion people and 165 000 tons of gold. It is 23.2 grams per person.

Gold's purchasing power has stayed essentially unchanged from 1913 to 2013. A skilled worker in the U.S. earned $50 per month, which is 2.5 ounces of gold. The same 2.5 ounces today costs $3,500, which is still a reasonable wage of a skilled worker. Both amounts let you live in a relative comfort.

In 1913, all international currencies were defined in terms of a fixed quantity of gold, and were therefore linear representations one of another. Despite the large number of bills (banknotes) in circulation, the existence of real bills kept the gold's value from appreciating without bounds, regardless of the fact that the world trade and living standards increased very rapidly from 1873 to 1913.

When there was many goods coming into the market, the increase in the economy did not require dipping into the pool of the available gold coins. On the contrary, the overabundance of goods effected the rise in discount rate, which made holding present gold a relatively worse deal compared to holding future gold (i.e. real bills denominated in gold and payable in gold coin only, after a maximum of 91 days from writing, with 'interest'). Therefore the inordinate rise in gold's price as the consequence of specialization and the economic growth never happened. If somebody says so, it is not true. The economy expanded on self-liquidating, non-fractional reserve credit. (There was also non-self liquidating credit available such as mortgages and business loans, but delving into them is not the issue here.)

Bitcoins could serve as the basis of the future economy, in the similar way as gold did in 1873-1913. As as little as about 20 grams of gold per person could serve as the economic and financial backbone of the planet in 1913, BTC0.003 will do in 2013 if we give it a chance.

Making a quick conversion, using the value of a U.S. worker's monthly wage, we can calculate the potential value of bitcoin if this scenario ever becomes true. The monthly wage of a skilled worker would be 1.2 million satoshi, having a purchasing power of $3,500 in 2013 U.S. dollars.

Therefore a satoshi will be worth no more than $0.003, and 100 million satoshi = 1 bitcoin, will be worth $300,000. Any price above this (remember to factor in the USD inflation, though!) is likely a short-term aberration, or a bubble, and should be treated accordingly.

What an unbelievably bad timing. This just underlines the fact that you should never trade with a significant position, if your overall position is significant. (And if not, and you try to double your small stash by savvy trading, be adviced that you could as well employ a roulette wheel...)

So I take courage of the fact that I still have both my long-term position, and >50% of the speculative position left. The latter will be sold on Monday, if the rally continues.

I found out that there is indeed Internet in the conference venue, so I will be able to post the most important things during the weekend.