Interesting take on Sanjuro's Assassination Market

[Sean Lynch]

On Mon, Nov 25 2013, Jim Bell wrote:

> I don't agree with your statement, "Bitcoin is only deflationary
> because the number of people who use it is growing faster than the
> number of coins in circulation.".   To the contrary, my understanding
> is that a number of factors have combined with the net result that
> Bitcoin is hyper-deflationary.  One major factor has been the shift
> of bitcoin 'mining' from computer CPUs, to video graphics processors
> (GPU's), to FPGA (Field Programmable Gate Arrays), and ultimately
> ASICs (literally, "application-specific integrated circuits"; what
> used to be called 'custom' IC's decades ago.)  While I don't have a
> specific number, I would not be surprised to hear that an ASIC miner
> is 1000x faster than even the fastest x86 CPU.  If that were the only
> factor, it would appear that new bitcoins should be 1000x more
> available than in, say, 2009.  However, I also understand that the
> 'difficulty' of mining bitcoin has been algorithmically increased
> regularly, in order to make it more difficult to compute to find
> individual bitcoins.   This is programmed into the entire bitcoin
> system.  In fact, it is to the point where the limiting factor to the
> cost of 'mining' bitcoin is the electricity cost of running the
> machines, not the cost of the machines themselves.  The bitcoin
> system 'programs' the appreciation of bitcoin by gradually increasing
> the difficulty of that mining operation.  This translates into an
> increase in the market value of bitcoin.
> In fact, this is essential to the (theoretical) outcome of bitcoin. 
> I think of it this way:  The system is programmed to only allow the
> generation of 21 million bitcoins.  If bitcoin is ultimately to be
> used to run the entire world economy (why not?) there should be at
> least one million times more.  (Say, 21 TRILLION; 21,000,000,000,000
> bitcoins, if we think of the ultimate value of a bitcoin as being
> roughly equal to the current value of the US dollar, the Euro, the
> British Pound, etc.)  But since they are limited to 21 million, by
> algorithm, the value of a 2013 bitcoin will have to be increased by a
> factor of 1000  to stretch to the task of funding a world's market. 
> And that means that the 2 million BTC currently in the wallet most
> likely owned by Satoshi will presumably increase in value to $2
> trillion  (USD).  "Nice work if you can get it".
> Is this a problem?  Who, instead, would claim that it ISN'T a
> problem!  Bitcoin has many great features, its possibility (through
> Zerocoin) of being anonymous one of the most intriguing,  but there
> is nothing about a digital currency that requires that it deflates at
> the rate historically associated with bitcoin.  I view this deflation
> as being arbitrary and capricious, and wildly too large.  Like I've
> said, I don't begrudge Satoshi $1 billion (USD), but I DO begrudge
> him $2 trillion.  If Satoshi's bitcoin rescues us from all
> governments (enabling 'AM'), perhaps he should be entitled to $10
> billion (USD), but not $2 trillion (USC).
>          Jim Bell

I'm far less concerned about Satoshi Nakamoto's ending up a trillionaire
than I am about central banks' ability to print money to enrich their
friends at will. It's also unrealistic to require that every alternative
currency that appears be able to absorb the entire world economy; why
can't a cryptocurrency just be one of many options available? I'm hoping
Bitcoin is even just one of many *cryptocurrencies*
available. Monocultures are fragile.

-- 
Sean Richard Lynch <seanl at literati.org>
http://www.literati.org/~seanl/