Topic: Why the laws of market will scale bitcoin no matter what we think (Read 404 times)
Great read thanks!
March 05, 2016, 04:05:10 PM
There is at least one problem with the Bitcoin protocol that has to be solved for it to become truely infallible. Whoever owns over 50% of the transaction processing power will be able to control the blockchain, it is not unthinkable in the modern world for certain governments or companies who would want to manipulate that.
March 04, 2016, 11:43:16 PM
Bitcoin will scale, or it will die.
All expectations in the success of the bitcoin protocol to be a decentralized, hence trustless solution to help us solve the problem of "coincidence of needs" in trade aka, pure abstract money, as well as a global, permissionless, unalterable record of a value-owner pair ledger record rests on some axioms:
Abstract
- That while such properties are indeed very valuable (=economic utility), the value is coming from utility, scarcity is an already given base assumption of the unreplicable ledger entries, and any monetary system depends on the time preference of the economic actors https://en.wikipedia.org/wiki/Time_preference;
- That scarcity is not the prerequisite of value, only if subjectively valued utility emerges with actors! aka value is an "and" relation, not an "or" relation to the scarcity vs utility; scarcity never gives value by itself;
- This is a chicken/egg problem: at what point of time of (bitcoin) adoption we are allowed/restrained to introduce scarcity, without hampering more "value added" users to join the system aka. how much users and invested economic value we need at which point the consensus can arrive about the economic/technical/political limits of the network can be agreed upon;
- All the variables can and will change in time, simultaneously or one by one: there will be new technologies that allow 2x-5x-10x-100x more transactions/sec to happen; there will be new political circumstances arise by the user base to force new rules - not independent of technical ones(!) (NOT ones like 21mil+ coins, that is obviously will never reach consensus, due to the incentive system of game theory); market forces can alter the course of development, human action, goals (like the "global reserve currency vs. coffee shop transaction problem");
- Anyone who seriously dealing with bitcoin must be REALLY open minded: the infancy of the internet taught us some lessons, just check out the IPV4/bandwidth prophecies;
- Anyone who thinks that 7tx/s or even 700tx/s is a good backbone for the birth(!) of a (even just) global settlement or payment system is delusional. There are 7billion people, if everyone does only 1 economic tx/day ("1 bread please"), that is 7bill/24/60/60=81k tx/second (which would equal about 23,730 MB data per block with 300kb avg. tx size); humans do more trade than most realize!
My point is, the bitcoin network needs to be - in time, gradually updating (hardforking) - more robust just to facilitate even a 1/10,000 of the global financial volume. We need a fee market in time, and we need coffee shop buys till that time arrives. But, since there are - obviously - no market economists in the developer team - exl. Satoshi who/whom were obviously had one -,the most inclined and influental economical actors such as miners will decide.
And that is good.
This, after all, is a backbone for a global economic system, based on cold, calculating, merciless, profit* oriented will. Anyone who can not fathom this, will be swept away, ironically, in the name of the common good, because, the common good is a system with the least fraction, least waste, most freedom of choice combined with the latest technology. Cypher punk is right because it is freeing us up to act as we see fit, and economically sound in the present, not because it is "punk"!
Technicals
Think about the technical facts:
If bitcoin has at least 1 million active users in the "western world" right now (North America, UK, Eu, Australia, East coast mainland China, Japan, SK) and if only 1/10 of those invested users has realistically 10MB/s net with free 200GB HDD and Core3+ CPU, we would see 100,000 nodes running. It is not technicality that restricts node operation, it is either the lack of incentives or knowledge that withholds 90%+ to contribute. My futurist vision is that if bitcoin really does became an international (even if just settlement) currency with 1-1000 k tx/s+ than every major supermarket, shopping mall, dealership, commerce office, small shop, hotel, airline, manufacturing industrial park will run a full node in their server room (it can not possibly costs more than a few thousand dollars/year, they spend more on whore parties for top salesmen at christmas, and i know that as a fact!), just as they run a "credit card database" server today. That is decentralization.
Hundred thousands of companies, malls, offices running full nodes, all around the world in different juridical districts maintaining the bitcoin blockchain. That is way more decentralized than anything today's ~6k-12k nodes. Not to mention, that with technological development (and even without it, now i could run a 1GB/block TODAY with no real costs other than a new 300$ 6TB HDD for a year) when storage price, bandwidth increase, RAM/CPU capacity increase by 10x alas in 10 years, a home user can do it.
So, the technical side of "fear of centralization" just does not stand, knowing the present facts, and has no clue what might be possible in the future. (I am in my 30s, and remember running progs from magnetic tape..)
Economic law(s)
About the economical considerations.
There was never a commodity remotely anything closer to be regarded as a "near perfect market driven good" than bitcoin is in the recent thousands of years. Why? The exchange information is instantly available for everyone all around the world in live to observe without censorship, and while some state intervention may distorts the local price (Chinese price is higher due to capital controls for example), being a purely abstract "commodity", and 24/7 globally tradable good whitout a third party's premission (well, exchanges are 3rd parties) it is still one of the freest priced goods in the world. That said, the current price says that this whole network worths 6,242,860,400 USD at the time i type this.
Check https://en.wikipedia.org/wiki/World_economy It says the 2014 World nominal GDP was ~ 77.6 trillion USD. That is 12433x more value created (half of it is tax founded corruption/construction crap, i guess) in one year than bitcoins market cap total so far. Which means, that just to capture 1% of yearly total economic growth -not total WEALTH of the world - bitcoin needs to growth alas 124x in market cap., which is 50,344$/BTC. (at the time i write this BTC is 406$). Of course, bitcoin is more than its price, it has an invested 1billion$+ in future returns research, altcoins, sideprojects, the knowledge of 10k+ professionals etc. as well, but that is not my point. My point is:
Do not think/hope bitcoin will stay the same as it is today. Just as it is radically not the same thing as it was 3-4 years ago. To get a glimpse of a chance to even being the new "digital gold", or the base for swift, low cost trustless network for solutions such as sidechains, LN, and whatever, it AT LEAST has to penetrate into the 1% economic activity area (which is still laughable....). To think that a network where coffee purchases are argued to be/regarded as spam today(!) in an economic reality where the whole network did not even penetrated the 0,01% of global economic activity is self defeated thinking, and i am sorry, but read some economic statistics. BTW, Starbucks market cap is 86,76billion $ https://finance.yahoo.com/q?s=SBUX. So, a coffee shop multi has ~14x times market cap than bitcoin.
I know that today's as of 05.03.2016 the fee is set to 0.00015 - my wallet software automatically adjusted to this as the right value from 0,0001 from last week - did 100% included me in the next block, i just did a tx. so i know, there is no hung up if i pay; that is 1/3 of the price of a cigarette in my country - am totally OK with it, still laughable cheap. Yet, if 100million+ (1,4% of global populace) want to transact, it does not matter how high they bid the fee, there is still only max 7tx/s. or 14tx/28tx/s whatever silliness.
We can not seriously base a global value reserve system on anything less than, say like 10,000tx/s. Read some statistics on http://www.realtor.org/field-guides/field-guide-to-quick-real-estate-statistics.
Only in the US there were 4,940,000 real estates changed hands in 2014 in the US, reported in this one real estate agency site (that should be great enough in value to be recorded in the blockchain if it is only a settlement layer. Or not? Only Aircraft carrier sales are OK?)
How about if only the 49,400,000 residential estates exchange/year goes on to the blockchain (excluding commercial, industrial, development, agricultural etc., estate exchanges, which are 10x more as well in price and volume) for the record from the today's theoretically maximum ~220,000,000 tx/year (7*60s*60m*24h*365d)? So, if technical limits of only real estate exchange is - 7tx/s vs 70tx/s of real economic, high value worldwide trade get priced out (timewise, not costwise!!) due to "algorithmic constrains fee market, not by cost but by unworkable confirmation times of months", than what is a "not spam"?
Math:
If we accept math: there is n tx can be done in a year. It does not matter how many fee market players pay, if there are n+x txs, x will not be included in a YEAR's time, because it physically cannot be. If n=220mill, and x equals anything more than >1-5% of n, whom are bitcoin users, holders, than x will look for another alternative - people are more annoyance drived than cost drived! :-) ). Which equals the theoratical very maximum of bitcoin users worldwide to 1 person/1year/1tx to: ~220,000,000 user. There is a MAX 220 million user (people) to transact ONCE per YEAR on the bitcoin network with today's specifics. That is 3,14% of global populace if they only blockchain once per year....think about it.
And why would any everyday economic actor would use this payment/settlement/whatever network and invest, speculate, hoard bitcoins if he can not even buy a frigin' house for it in without >3+ months confirmation time lineup? Delusional thinking, or, we invent a "fast" settlement layer, upon the slow one. Except, that utility comes from economic value exchange, not from arbitrary scarcity. If bitcoin can not be used for at least a few times (1x-5x) in a month to pay recurring expenses with a max few hours of feedback with low fees, it has failed in 99,9% of the populace, and will never reach that 99,9%, and will stay in the 400/max 4000$ area.
Bitcoin MUST grow alas a 100x times in users which will kick in 100x value roughly (utility gives value). That means more robust in the "dull, omg coffee shope buys" payment system area, to even reach gold's market capitalization of "shiny stuff with excellent headphones and a CPU heat dissipator jewelry :-)".
I know and well aware, that the network capacity can not be increased ad infinitum, hence there will be and has to be an evolving fee market. There is no infinite in physics of the real. My argument is, that "we", the network, is faaaaaar away from the the point of diminishing return (where the energy required to do additional increase gives less observable useful return then invested), and that every economic system will stretch - given it is controlled by economic aka rational self interest rather than a political one - until it reaches equilibrium of the maximum of profit margin for most actors. As an economic historic (yeah, waste of carpenting time
) i saw this pattern 1000 of times, and bitcoin is no exempt of this rule.
I argue, it either grows bigger in the near future, and again, and again till it reaches near economic equilibrium- at least a 100x-1000x bigger! by technical capacity limits before it has to introduce physical scarcity -, by necessity, or it goes away. The market will scale bitcoin, it is so far the most perfect abstract of money, and no amount of theology can block it.
In the spirit of a good wager,i am more than eager to receive your feedback, regarding the economic,technical, political arguments on why i am wrong/almost/spot on.
*profit; z = a thermodynamic law necessity. Any system based on mater/energy must unceasingly spend energy (=action) through time to even maintain the present state of itself compared to any future moment; as well as: 'must acquire n+x energy through action, where n is the original energy state before the action in "frozen" time; x (per definitum greater than zero) is the used up energy to execute the action in non zero time; hence to reach at least equal past energy state, it must reap z which is at least is n+x energy from x action, or it will perish. Any action giving the energy equation which is: z>n+x, is a probable energy state for the actor to continue the existence travel through time. In short: profit.
All expectations in the success of the bitcoin protocol to be a decentralized, hence trustless solution to help us solve the problem of "coincidence of needs" in trade aka, pure abstract money, as well as a global, permissionless, unalterable record of a value-owner pair ledger record rests on some axioms:
Abstract
- That while such properties are indeed very valuable (=economic utility), the value is coming from utility, scarcity is an already given base assumption of the unreplicable ledger entries, and any monetary system depends on the time preference of the economic actors https://en.wikipedia.org/wiki/Time_preference;
- That scarcity is not the prerequisite of value, only if subjectively valued utility emerges with actors! aka value is an "and" relation, not an "or" relation to the scarcity vs utility; scarcity never gives value by itself;
- This is a chicken/egg problem: at what point of time of (bitcoin) adoption we are allowed/restrained to introduce scarcity, without hampering more "value added" users to join the system aka. how much users and invested economic value we need at which point the consensus can arrive about the economic/technical/political limits of the network can be agreed upon;
- All the variables can and will change in time, simultaneously or one by one: there will be new technologies that allow 2x-5x-10x-100x more transactions/sec to happen; there will be new political circumstances arise by the user base to force new rules - not independent of technical ones(!) (NOT ones like 21mil+ coins, that is obviously will never reach consensus, due to the incentive system of game theory); market forces can alter the course of development, human action, goals (like the "global reserve currency vs. coffee shop transaction problem");
- Anyone who seriously dealing with bitcoin must be REALLY open minded: the infancy of the internet taught us some lessons, just check out the IPV4/bandwidth prophecies;
- Anyone who thinks that 7tx/s or even 700tx/s is a good backbone for the birth(!) of a (even just) global settlement or payment system is delusional. There are 7billion people, if everyone does only 1 economic tx/day ("1 bread please"), that is 7bill/24/60/60=81k tx/second (which would equal about 23,730 MB data per block with 300kb avg. tx size); humans do more trade than most realize!
My point is, the bitcoin network needs to be - in time, gradually updating (hardforking) - more robust just to facilitate even a 1/10,000 of the global financial volume. We need a fee market in time, and we need coffee shop buys till that time arrives. But, since there are - obviously - no market economists in the developer team - exl. Satoshi who/whom were obviously had one -,the most inclined and influental economical actors such as miners will decide.
And that is good.
This, after all, is a backbone for a global economic system, based on cold, calculating, merciless, profit* oriented will. Anyone who can not fathom this, will be swept away, ironically, in the name of the common good, because, the common good is a system with the least fraction, least waste, most freedom of choice combined with the latest technology. Cypher punk is right because it is freeing us up to act as we see fit, and economically sound in the present, not because it is "punk"!
Technicals
Think about the technical facts:
If bitcoin has at least 1 million active users in the "western world" right now (North America, UK, Eu, Australia, East coast mainland China, Japan, SK) and if only 1/10 of those invested users has realistically 10MB/s net with free 200GB HDD and Core3+ CPU, we would see 100,000 nodes running. It is not technicality that restricts node operation, it is either the lack of incentives or knowledge that withholds 90%+ to contribute. My futurist vision is that if bitcoin really does became an international (even if just settlement) currency with 1-1000 k tx/s+ than every major supermarket, shopping mall, dealership, commerce office, small shop, hotel, airline, manufacturing industrial park will run a full node in their server room (it can not possibly costs more than a few thousand dollars/year, they spend more on whore parties for top salesmen at christmas, and i know that as a fact!), just as they run a "credit card database" server today. That is decentralization.
Hundred thousands of companies, malls, offices running full nodes, all around the world in different juridical districts maintaining the bitcoin blockchain. That is way more decentralized than anything today's ~6k-12k nodes. Not to mention, that with technological development (and even without it, now i could run a 1GB/block TODAY with no real costs other than a new 300$ 6TB HDD for a year) when storage price, bandwidth increase, RAM/CPU capacity increase by 10x alas in 10 years, a home user can do it.
So, the technical side of "fear of centralization" just does not stand, knowing the present facts, and has no clue what might be possible in the future. (I am in my 30s, and remember running progs from magnetic tape..)
Economic law(s)
About the economical considerations.
There was never a commodity remotely anything closer to be regarded as a "near perfect market driven good" than bitcoin is in the recent thousands of years. Why? The exchange information is instantly available for everyone all around the world in live to observe without censorship, and while some state intervention may distorts the local price (Chinese price is higher due to capital controls for example), being a purely abstract "commodity", and 24/7 globally tradable good whitout a third party's premission (well, exchanges are 3rd parties) it is still one of the freest priced goods in the world. That said, the current price says that this whole network worths 6,242,860,400 USD at the time i type this.
Check https://en.wikipedia.org/wiki/World_economy It says the 2014 World nominal GDP was ~ 77.6 trillion USD. That is 12433x more value created (half of it is tax founded corruption/construction crap, i guess) in one year than bitcoins market cap total so far. Which means, that just to capture 1% of yearly total economic growth -not total WEALTH of the world - bitcoin needs to growth alas 124x in market cap., which is 50,344$/BTC. (at the time i write this BTC is 406$). Of course, bitcoin is more than its price, it has an invested 1billion$+ in future returns research, altcoins, sideprojects, the knowledge of 10k+ professionals etc. as well, but that is not my point. My point is:
Do not think/hope bitcoin will stay the same as it is today. Just as it is radically not the same thing as it was 3-4 years ago. To get a glimpse of a chance to even being the new "digital gold", or the base for swift, low cost trustless network for solutions such as sidechains, LN, and whatever, it AT LEAST has to penetrate into the 1% economic activity area (which is still laughable....). To think that a network where coffee purchases are argued to be/regarded as spam today(!) in an economic reality where the whole network did not even penetrated the 0,01% of global economic activity is self defeated thinking, and i am sorry, but read some economic statistics. BTW, Starbucks market cap is 86,76billion $ https://finance.yahoo.com/q?s=SBUX. So, a coffee shop multi has ~14x times market cap than bitcoin.
I know that today's as of 05.03.2016 the fee is set to 0.00015 - my wallet software automatically adjusted to this as the right value from 0,0001 from last week - did 100% included me in the next block, i just did a tx. so i know, there is no hung up if i pay; that is 1/3 of the price of a cigarette in my country - am totally OK with it, still laughable cheap. Yet, if 100million+ (1,4% of global populace) want to transact, it does not matter how high they bid the fee, there is still only max 7tx/s. or 14tx/28tx/s whatever silliness.
We can not seriously base a global value reserve system on anything less than, say like 10,000tx/s. Read some statistics on http://www.realtor.org/field-guides/field-guide-to-quick-real-estate-statistics.
Only in the US there were 4,940,000 real estates changed hands in 2014 in the US, reported in this one real estate agency site (that should be great enough in value to be recorded in the blockchain if it is only a settlement layer. Or not? Only Aircraft carrier sales are OK?)
How about if only the 49,400,000 residential estates exchange/year goes on to the blockchain (excluding commercial, industrial, development, agricultural etc., estate exchanges, which are 10x more as well in price and volume) for the record from the today's theoretically maximum ~220,000,000 tx/year (7*60s*60m*24h*365d)? So, if technical limits of only real estate exchange is - 7tx/s vs 70tx/s of real economic, high value worldwide trade get priced out (timewise, not costwise!!) due to "algorithmic constrains fee market, not by cost but by unworkable confirmation times of months", than what is a "not spam"?
Math:
If we accept math: there is n tx can be done in a year. It does not matter how many fee market players pay, if there are n+x txs, x will not be included in a YEAR's time, because it physically cannot be. If n=220mill, and x equals anything more than >1-5% of n, whom are bitcoin users, holders, than x will look for another alternative - people are more annoyance drived than cost drived! :-) ). Which equals the theoratical very maximum of bitcoin users worldwide to 1 person/1year/1tx to: ~220,000,000 user. There is a MAX 220 million user (people) to transact ONCE per YEAR on the bitcoin network with today's specifics. That is 3,14% of global populace if they only blockchain once per year....think about it.
And why would any everyday economic actor would use this payment/settlement/whatever network and invest, speculate, hoard bitcoins if he can not even buy a frigin' house for it in without >3+ months confirmation time lineup? Delusional thinking, or, we invent a "fast" settlement layer, upon the slow one. Except, that utility comes from economic value exchange, not from arbitrary scarcity. If bitcoin can not be used for at least a few times (1x-5x) in a month to pay recurring expenses with a max few hours of feedback with low fees, it has failed in 99,9% of the populace, and will never reach that 99,9%, and will stay in the 400/max 4000$ area.
Bitcoin MUST grow alas a 100x times in users which will kick in 100x value roughly (utility gives value). That means more robust in the "dull, omg coffee shope buys" payment system area, to even reach gold's market capitalization of "shiny stuff with excellent headphones and a CPU heat dissipator jewelry :-)".
I know and well aware, that the network capacity can not be increased ad infinitum, hence there will be and has to be an evolving fee market. There is no infinite in physics of the real. My argument is, that "we", the network, is faaaaaar away from the the point of diminishing return (where the energy required to do additional increase gives less observable useful return then invested), and that every economic system will stretch - given it is controlled by economic aka rational self interest rather than a political one - until it reaches equilibrium of the maximum of profit margin for most actors. As an economic historic (yeah, waste of carpenting time
) i saw this pattern 1000 of times, and bitcoin is no exempt of this rule.I argue, it either grows bigger in the near future, and again, and again till it reaches near economic equilibrium- at least a 100x-1000x bigger! by technical capacity limits before it has to introduce physical scarcity -, by necessity, or it goes away. The market will scale bitcoin, it is so far the most perfect abstract of money, and no amount of theology can block it.
In the spirit of a good wager,i am more than eager to receive your feedback, regarding the economic,technical, political arguments on why i am wrong/almost/spot on.
*profit; z = a thermodynamic law necessity. Any system based on mater/energy must unceasingly spend energy (=action) through time to even maintain the present state of itself compared to any future moment; as well as: 'must acquire n+x energy through action, where n is the original energy state before the action in "frozen" time; x (per definitum greater than zero) is the used up energy to execute the action in non zero time; hence to reach at least equal past energy state, it must reap z which is at least is n+x energy from x action, or it will perish. Any action giving the energy equation which is: z>n+x, is a probable energy state for the actor to continue the existence travel through time. In short: profit.
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