I thought it was money printing?

This is not a thing. Any Austrian should tell you that prices are not inflation. Prices can move for any number of reasons, whole asset classes even. This is the financial hurricane idea.

Nothing is perfect.

It's part of the puzzle.

Yes, and I would add cultural prosperity.

It's very hard to go against the tide of say demographic decline or war.

Due to accumulated systemic drag.

I won't call it a void. If money is a tool, I'd say the tool has dulled to the point that it is basically ineffective. Mankind needs a replacement tool to accomplish the same task.

It was already changed prior to 1971. The world had transitioned already to a Eurodollar standard off shore, and those unregulated dollars printed off shore put stress on the US gold reserves.

This is not monetary policy, this is fiscal policy.

Natural disasters always widen the wealth gap.

Who is obligated to help those without assets?

This is a horse and buggy claim. Money doesn't work like this.

It is not freshly printed cash, and there are no bids, they swap securities for reserves held at the central bank. These reserves do not act like money in anyway, other than this one transaction and as a balance sheet asset for banks. It does not circulate as cash or money.

Ask yourself, what if the Treasuries are treated by the market as some sort of cash? What if it's Treasuries + deposits that the market treats as cash? What is the market treating as money?

QE is not money printing for two reasons, 1) it is just reserves held at the Fed, it's not cash into banks to use as they please, and 2) Treasuries in the market act as a cash equivalents and are part of the money supply needed for liquidity. Take USTs out of circulation, decrease the money supply.

As for the bids, well the Fed does not bid directly for USTs at auction. If the Fed were adding more more demand to the market, you'd expect the prices paid at auction to be less than the secondary market where the Fed buys them. In other words, the dealers would pay less at auction and flip them for more a profit to the Fed, but in fact, the bids at auction are almost always more than they can flip them to the Fed. So this is an automatic loss for the banks.

This is 100% wrong. It definitely does not work like that. QE creates a balance sheet fiction at the central bank in order to make large banks looks solvent. This is not cash!

Very debatable. Likely exactly backwards, QE impairs liquidity.

This is also explainable simply by people pursuing their own self interest. The "tool" aspect is questionable. Interest rates fall because the financial hurricane shifts people toward bonds.

It is also the case that market rates precede central bank movements. The Fed dropped rates to zero after the market rates were already almost there.

Yes, but the option to jump ship to a new currency is always there.

Interesting that bitcoin arrived right as the interest rates hit 0% in 2008-9.

This whole connection is backwards. It is not low rates that lead to growth, but low grow which leads to low rates. When growth returns, rates rise. Growth is the independent variable, not rates.

This is debatable. "Don't fight the Fed" is a useful mantra, but it remains to be seen if they are really in control. It is looking more and more like they are not.

The scholarship from the Fed itself leans toward them not having direct control other than forward guidance.

Business cycle theory is a hallmark of Austrian Economics.

Like the 4th Turning

Okay, so there was never a definition of security.

The sound money definition was actually a skewed version of hard money, that with an inelastic supply curve.

Fees were misidentified as drains to the economy, when in reality, since they happen in a free market for a service, they are win-win and a big net positive for the economy, increasing value dramatically.

Issuance with a fixed cap is different than without. Which a fixed cap that is unassailable like bitcoin, all 21 million were created at the genesis block and only released with mining.

Issuance without a fixed supply is distortive to the economy. Added to the anchor on activity that fee burning has showed in practice and in theory, this is a recipe for dramatic wealth concentration, and a slow grind in economic activity, especially with great alternatives to all use cases on ethereum today being found in other networks and even Liquid on bitcoin.

PoS with fee burning has been tried on Bitshares in 2014, it is not new or effective. It skews the game into who can rent-seek the most efficiently as a staker. They end up selling everything anyway. You can also make money shorting to rinse and repeat attacks on PoS.

I could go on and on. Cheers.

PoS predates PoW, and burning fees is a very old idea. It's not like this is new. Burning fees goes back at least to Bitshares in 2014. They also had PoS. So this combination is not new or unique.

The direction of the feedback loop is based an assumption. If that assumption is based on the arguments here, it is likely wrong.

A free market economist would say the distortions are multiplicative.

Anything Ethereum can do an ethereum clone can do. It is not unique to ethereum because ethereum isn't designed for unique attributes like most concrete protocol rules or fixed supply, fasted transactions, etc etc. Ethereum is the GPU of decentralized networks.

True

I don't know how you can quote this estimate and also think this won't have a dramatic affect on usage of ETH. The price distortions from burning 2.2M ETH in a year will be massive.

Money is the good which allows for indirect exchange and decentralized economic calculation. If you withdraw money from circulation in one vector and pump it back in in another, you are causing massive economic distortions which will slow growth.

The free market is finely tuned to maximize growth. The more fancy policies you implement, the slower the economy will grow.

We must pass the bill to know what's in it. My my.

I was waiting for this definition. No, sound money is money chosen by the market freely and is stable in market value. The author is thinking of hard money. Hard money is specifically money with a relatively inelastic supply curve.

That doesn't apply here either, because people can simply stop spending ETH, and/or staked ETH can decrease. This is a recipe for explosive growth in the supply of ETH even with these best laid plans of central planners who think they can outsmart the free market.

Like a square wheel!

Just because a subsidy is built into a protocol doesn't make it natural. Both issuance and burning fees are distortions of natural economic activity.

Both these measures severely handicap economic activity on chain, which is the only place it can happen for ETH for the foreseeable future. Contrary to every argument here, these will slow the "economic engine" of ETH to only staking or investing ETH as collateral.

This is not how it works. If you burn transaction fees, firstly you introduce an incentive not to spend or create bloated smart contracts. Second, transaction fees are not a drain on bitcoin, they are in fact a free market transaction for services and hence a big positive for value created. The higher the fees the more value being created. Burning the fees handicaps this critical value creation route. This is why people say the cost of mining is like a floor to the price, because that is the bid for that critical service.

Who the hell decided this was excess?

This is an artificial incentive structure. A new incentive structure, that will change again in the future. Every new incentive added to the basic system creates distortions that are hard to predict. This is basically turning Ethereum into the DAO. It's not a question of if these incentives will get gamed, but when. And what will the EF do about it.

Right now. How many times has that changed, and will that change?

It's actually the opposite. Those with the worse opinion of the ethereum ecosystem will stake instead of investing elsewhere.

This whole section is a pump-fest with little serious arguments. Here are two we can look at.

First PoW miners attempt to be more efficient. This is typical in a free market system that is cost sensitive. Reducing cost and increasing revenue is the name of the game. A little weird to say that's a bad thing. They are providing a service and they are paid for it. Everyone wins.

Second, if you really want to compete on your bullishness for ETH you'd go 5x long with your stash. Staking is not the most bullish thing you can do, in fact it is relatively lame returns. The amount staked should be viewed as the lack of other dynamic low risk opportunities in ethereum. Why wouldn't you invest your ETH for 5% instead of 1%?

Just like 0% 2 year interest rates in the fiat economy is a remark on how bad the economy is that there are no other better opportunities out there.

*staking ETH versus any other use. This is also a criticism of defi collateral, which is a competitor to staking. If there were other more profitable uses of ETH they would be used there. This means a completely unfinished and experimental defi is actually the best thing eth can do.

Of course, they are. There is some cost, though minimal for the computers, but the time involved to keep an ethereum node always-on and not be slashed is significant. A staker has to eat and feed their kids. There is always cost. Believing in a free lunch is naive.

The truth is that this use case is offering a subsidy for one use of those 32 ETH. What is the opportunity cost to staking? Perhaps investing? Trading? Lending? Who knows, but if the ETH is stuck in staking it can't be used elsewhere. The opportunity cost is still a cost, and since it is not a natural phenomenon, but one that is created by central planners, the opportunity cost will be higher than the benefit of staking.

There at least has to be some consideration for overstaking. This is the same stagnation problem faced by the fiat economy right now, it simply refuses to grow due to the overhead.

See, there it is. Yet this same idea was not applied to acquiring hash rate against bitcoin.

No, there are any number of attacks that could damage ethereum. This is totally cherry picking one attack vector and saying it is the only one.

Anyone could attack a single staker in an attempt to slash them. This will happen, guaranteed. Slash several large stakers and the bar becomes much lower to straight up attack.

You can also borrow coins, to simply cause mayhem, short the market price, profit, rinse and repeat.

Ethereum folks have the MO of not knowing economics very well and not thinking adversarially.

Again, square wheels are dumb. We can say people innovating toward square wheels are almost surely dumb or scammers.

No, that is the decentralization. Decentralization is inherently inefficient energy and effort wise. So is ethereum. Bitcoin optimizes for set rules. All its consensus rules are equally as concrete. This allows for the most social scalability around and on top of those rules. There is no waste.

Ethereum as sacrificed rules for the whims of central planning.

The consensus rules are set. It's been optimized from the beginning. It has not changed. It is ethereum that is allowing humans to mess with rules and centrally plan.

This doesn't make sense.

Yes, the miners are managing their own balance sheets, so are the people who are buying from the miners.

Those miners are rational actors. THEY are saving for a rainy day, not some central planners at a foundation. The uneducated economics here is head smacking.

This seems to imply central planning.

To whom?

Not really. Fees are generally consistent over the long term, and set from genesis supply schedule makes that consistent and predictable. Over the very short term, 1 day, both fees and block reward are unpredictable, because you don't know how many blocks you'll find.

Not over the long run. Finding blocks is also random.

This is partially true. Bitcoin fees are generally predictable. Even this author's commentary is predicting unpredictability. Over the long run, fees will be generally consistent.

Miners don't every plan one block at a time anyway. The way they plan is projecting what the revenue will be over a 3 month period or something of that nature. They don't know if they will find the next block, or 1 in the next 100, or 50 in the next 100. They expect averages, average fees will be fairly consistent overtime.

Fees do however, guard against empty block attacks. Some entity attempting to 51% attack bitcoin with empty blocks will lose out on fees. Fees will go up providing separate incentive to honest miners.

What is security?

What is secured mean?

Let's just say for argument's sake this is true, the decrease of new issuance will minimize the sell pressure over time right? PoS has a sell pressure too, living expenses of the staker and the not insignificant expenses of running an always-on ethereum node for staking. Without an issuance cap, this is real constant sell pressure, where bitcoin's goes down over time.

But again, this is not the case. Due to free exchange, every sale of bitcoin by the miners actually increases benefits in the system not decreases them.

There cannot be one without the other. And in a voluntary exchange it's a net positive for everyone!

What is security?

Or long-term perpetual buying pressure. Each sell has a buy.

No, roughly the same amount. I grant that very early on bitcoin mining was more profitable, but expenditure trends toward revenue, margins get squeezed (this is the proper measure of efficiency btw). Today is another example of this where mining profitability has expanded. And this period of chip shortage is also simulating an attack where a State actor is attempting to buy the entire supply of new ASICs.

This is the main false claim. Mining charges the monetary unit in your analogy, because all sells have buys and in free exchange both parties benefit.

What is security?

What is this?

It's the same as gold. All bitcoins were created at the genesis block and are found. The cap will always be 21 million.

WTF? this makes no sense. You can easily say bitcoin's 21 million were created at genesis as well, and the subsidy is people finding or unlocking coins in the same way as gold in your argument.

As for the securing the value of gold, what does this even mean? Gold's market price goes up and down, and people's subjective valuations of gold go up and down. No security of its value is necessary, just like bitcoin and ethereum.

Gold as backing for money (paper notes) does have a cost. If you want to hold your gold in a vault there are fees. There are also shipping fees if you want to spend gold long distances.

On top of that, an economy is necessary for the use of gold. In a Mad Max scenario gold's monetary premium likely drops to zero. If the population drops to 1 there is no trade, gold's value drops to zero. The ongoing cost of gold is any maintenance costs for the economy in general.

It can be brought to Earth, so no.

This has never happened before, it's not "recreating" anything. It is maximizing monetary properties, hence the resemblance to the previous best thing with monetary properties gold.

Gold is very good money. It's not a coincidence they are similar. Any good money will be similar to gold.

They can be. Some of them are extortion rackets we call scams. Being a crypto-system is really not a qualifying factor for much other than the ability to create digital scarcity.

The author still has not defined what "security" is.

They are not competitors. Their efficiencies (whatever that is) are not comparable.

This doesn't follow. It is a leap. Likely in periods of recession when investments are going bad, money appreciates as a flight to safety.

It doesn't take $6.6 bn to arrest someone managing a staking now and getting them slashed. This cost estimation would only be taken seriously by a novice.

This is a substitution fallacy. It blatantly ignores supply and demand. If the demand for any product goes up relative to supply, prices will increase.

For an attacker to buy $5 billion in ASICs they'd crowd out the entire market and send prices soaring. $5 bn would turn into $100 bn very quickly. And the time it would take to deliver that equipment would be years! In that time, new companies to produce chips would come into existence and snap up that profit. The rest of the market wouldn't stand still. Therefore, the hash rate needed would likely double in a year's time and triple or quadruple in 2 years. That $100 bn would skyrocket to $1 trillion who knows.

It is a disgusting oversimplification to say $5 bn.

Of course, you don't ignore this argument for PoS. I haven't read it yet, but you will surely say that as an attacker attempts to buy ETH they will increase the price.

The ultimate power is people's subjective values. It is not accurate to say PoS or PoW safeguards value. You bring up Bcash, well they have the exact same PoW algorithm yet is valued much lower. It depends on the firmness of the rules, confidence in the rules and the future of the system. It has very little to do with the consensus mechanism, other than people generally have less faith in PoS.

We find this same dynamic in fiat currencies. The rule of law is a primary factor in the success of a currency. If people anticipate a period of uncertainty ahead for a certain currency, say the Brazilian Real, they will dump it in favor of another currency to weather the storm. This is the competition of money, not charging and discharging value as argued here.

*hashing algorithm

I agree to an extent, but it also allows for more consolidation in nascent systems. Arrest the founder and the system can lose confidence and spiral down to zero. The $5 wrench attack is still valid.

There is still a role for militaries, because people will still band together with weapons and go try to take things from other people.

And Proof of Work.

Two sides to the same transaction. This is just not how it works.

Yes, but this is a money centric view of economics. It also means their relative demand for other things has gone up. Value is subjective. By the value of money going down, begs the question, going down relative to what? Well, relative to other goods.

What happens in a natural disaster? Wealth/capital is destroyed. This can cause a spike in demand for replacement goods, which will lower the demand for money. We would see prices for many things going up, but that doesn't go back to any primary cause from issuing money, or inflation. Prices move all the time.

Why? They can also default on their liabilities. To apply it to the analogy of the hash rate or mining, they simply cut their costs. Either layoff a couple employees, or pull back their hash rate and sell some equipment (which will be bought and turned back on btw). They don't have it issue more money.

This is the MMT fallacy that money must be created by a "State". In the case of bitcoin, this theory is attempting to place the block producers as the government, when we know from empirical evidence they aren't in charge of anything.

Mass buying/charging at the same time.

You can also say they are bought. This is a one-sided blind argument. Sellers are not discharging value by selling, their subjective value has already moved. How do we know this? Because people accept a price if it equal to or above their subjective valuation.

Also, there is a buyer in each exchange, hence they are "charging the monetary unit"? No, this whole idea is weak.

For every seller there is a buyer and in voluntary exchange both parties benefit. This is the achilles heel of your argument. There cannot be more buyers than sellers. There can be more supply than demand as a certain prices, but that excess does not get traded. Anywhere there is an exchange, both parties benefit.

Overly simplistic. Bubbles also do this. Prices return to the mean over a boom bust cycle.

No. Money usually appreciates during bad times when people flee for safety, not due to technological efficiency gains. This is a big problem with the technology driven deflation narrative. People will simple spend more.

The bottom line is the savings rate. If the savings rate goes up, the money will appreciate. If the savings rate goes down the money will tend to depreciate.

Money does not get "charged" with value. The value of the money is a market clearing price. At any moment there are sellers of the currency and buyers. This can be with other forms of money or with goods and services. There millions of prices at any one moment, and they change the next. These are also location specific, so prices in NY will be different than Miami. Money gets value subjectively, and prices from trade are merely how we receive information about that subjective valuation.

Draining of value out of a monetary unit is not a mechanistic thing. It's a mental and societal phenomenon. For starters, value doesn't usually accrue to a monetary unit that doesn't foster trust in its concrete and unchangeable nature.

Hyperinflation is rare and interesting event. It doesn't necessarily have to do with what people think of as "money printing". Hyperinflation usually starts with a loss in confidence in the money itself separate from money printing, then money printing comes in to backfill, and the feedback loop is initiated.

The important idea is that hyperinflation doesn't start with a healthy economy where the government prints too much. The first step is an unhealthy economy and loss in demand for the money, the second step is the printing.

The reason military spending is usually classified as wasteful is because of the opportunity cost. The free market alternative uses are the opportunity cost, and they will be of greater value than the centrally planned defense spending. However, this is not the case in bitcoin. Bitcoin's spending is all voluntary, therefore we can say the opportunity cost is lower than the benefit gained from free exchange.

This is the basis for much of the misguided conclusions here. You cannot "draw power out of a monetary unit". That is a misunderstanding of voluntary trade. In this context, voluntary trade charges up the monetary unit because both parties benefit.

If overall demand were to shrink is what would make value leak from a bitcoin denominated economy.

Still no definition of "secure". There are many ways bitcoin secures itself against attacks.

*taken

Before even reading this section I have to bring up the conservation of energy.

This is false because freedom to issue new money, in the best possible case, will be stable for only brief periods of time, and unstable in the long-term. Any level of issuance causes distortions in incentives and build up over time.

What bitcoin did was innovate a way to take issuance out of the long term equation to minimize distortions caused by issuance. It doesn't work either to have issuance and drainage somewhere else because that just introduces different incentives and distortions.

This reminds me kind of the current credit based system. Money supply is created in a loan and destroyed via paying off the loan. This distorts economic activity toward financialization and short term thinking. Debts get rolled, leverage builds up, and there are periodic crises.

Long story short, this is not a way for long-term stability.

This can be done with debt, too. This section sounds a lot like MMT.

How is this working in Venezuela? The government can try to force the acceptance of money, even dictate prices, but it cannot force people to use it.

If I'm following your reasoning properly, this is still wrong. The benefits of economic exchange are inherent in the exchange itself. Defense spending benefits all parties to the voluntary exchange. The incentives are aligned. This is about natural market emergent incentives, not some crypto-economic central planning.

I don't get this concept. Where does the energy go? This analogy is far too extended.

Energy is conserved. Money doesn't disappear. If someone sells it that means someone buys it, and they are both better off than prior.

The conceit of central planners.

Individuals, not governments, ultimately direct resources into defense. I buy a lock to my front door for defense, I pay for boxing lessons, I buy a gun, I fund local police, government, courts, and the same on the regional level, I study my options for which neighborhood to live in, I get to know my neighbors, I study rhetoric. All these things are, or can be ways to defend yourself.

Also, choosing which money to hold in cash balances can be construed as defensive behavior.

This is not way money is created. Money fulfills several functions in society that are very well known, medium of exchange, unit of account, and store of value. I've summed this up as an economic medium.

It is not simply to allow circulation of resources around the economy, people use money because it is directly beneficial to do so. It was not a bright idea of some central planner to create money to allow circulation of resources, people benefit from exchanging resources, and money was a good or tool that allowed for more nuance in that activity.

This is not how an economy works at all.

This makes no sense. "Meaningfully protected", "capture", "exposed", "attack" all these things are undefined and nonsense.

Okay, this is a straight up misunderstanding. Saying economies are desirable is like saying breathing is desirable, or gravity is desirable. It just is.

You cannot stop the economy from existing. It doesn't need to be guarded per se. People exchange things, produce, sell, buy, trade, etc because they it is beneficial. People partake in voluntary exchange because they benefit. The only thing that there is to attain by way of managing this natural interaction of people is to diminish this benefit.

I've heard that certain things can act "as an engine of growth" but not that economies are engines.

This is a vast oversimplification, too. An economy consists of many many processes and actors doing all sorts of things. They consume energy, but also create it, they consume resources, but also create them. They produce economic output, but also consume it.

Many things in an economy might look like inefficiencies but have hidden or immeasurable benefit. Off the top of my head, drugs, parties, celebrations, art, etc etc. All these things don't have a neat way of being measured.

The conceit of central planners. They don't understand economics or bitcoin.

Asking questions is different than claiming truth and pumping an altcoin.

This is not real discipline. It's just "economists."

It's due to many more things than mentioned here. To name them we need to go through the characteristics of what makes a good money and detail how bitcoin maximizes all these things.

This is immediately setting up consensus as a necessary evil as it were, or more precisely the cost of consensus.

Bitcoiners view consensus as a self-regulating force with net benefit not net cost. For instance, fees are taken from the transaction and given to the miner, it is two sides of the same coin, with zero net loss. In fact, since this is a voluntary exchange both parties are better off. There is a net gain from a transaction fee.

What is the cost and what is the benefit in the Ultra Sound Money assertion?

There are certain things that can be optimized, but there are hard and fast limits to optimization.

For example, a wheel can be optimized in infinite ways. But you won't find wheels being made into squares. If a person doesn't understand economics in the first place, they are bound to make useless optimizations.

Sound money is simply money that has been chosen by the market and is relatively stable in price.

This quote by Drake is based on an misunderstanding of sound money as fixed supply.

Ethereum folks have to make this basic mistake because if they did not, and realized sound money meant market chosen and stable, they'd have to admit that the market has chosen bitcoin relative to ethereum and that ethereum is more volatile than bitcoin. So, ethereum would be labeled and less sound than bitcoin.

If this is what cryptoeconomics is, it is garbage.

The past tense is inappropriate here. Ethereum is a never ending project of refinement. It is being refined and optimized.

This is one of the biggest hallmarks of central planners. They always tinker, and claim they really really optimized it this time. Next time they tinker, they same the same thing.

This analogy bends the mind. Money is not consumed like fuel. This misconception has roots of course in Ethereum's "gas" instead of "fees".

Ethereum decentralizes computation, where bitcoin decentralizes validation. Computation uses up much more resources, CPU cycles as well as wear and tear and bandwidth.

More accurately, we should call this recycling. Fees are recycling. Money is a non-consumable. "Selling" means "someone else is buying". Both parties benefit. There is no loss, there is only gain.

Therefore, to make this analogy more accurate, you have to say fees charge the battery while issuance drains the battery. (it still doesn't make very good sense, but you get the idea)

This is a fundamentally wrong analogy. Money is not consumed by its nature.

Miners or stakers are not security providers. Everyone running a node is a security provider, especially large economic nodes like exchanges, businesses, and investors.

Transaction fees are paid to miners to reward them for including transactions in blocks. The main outcome of a 51% attack is empty blocks. Meaning the attacker can refuse to include transactions in their blocks. The only incentive to not do that is fees. The subsidy (issuance) portion of the block reward is the same for honest or dishonest miners.

This sentence is important apparently because it is italicized. He still has not defined "security".

On top of that, of course, it allows ethereum to issue only what is necessary, because it allows it to issue any number at all, which necessarily includes a subjective minimum.

That makes me think, how do they ever know less issuance isn't acceptable? The only way to falsify that claim would be to decrease it and get attacked. You could always argue less issuance is possible and remain secure.

This is backwards as I pointed out above. Issuance is objectively not stable in ethereum, in fact it is arbitrary. Fees are generally stable and result from primary protocol rules just like issuance. It is easier to adjust issuance and harder to control fees indirectly.

This struck me. Is the author trying to say "for all blocks" or literally in between blocks, too?

I'm assuming this is hyperbole, these systems don't need to apply this reasoning to times in between blocks, because issuance doesn't secure that. It begs the question, what does secure the consensus "at all times?"

Well, it is decentralization and protocol rules. These two things are the basis for all security for the consensus.

However, Ethereum has seen fit to scrap these two things. They hard fork constantly, making issuance changes, other rule changes, and forking away from portions of the decentralized node network.

Ask this question, "is issuance was secures the dollar? or is issuance necessary to secure a centralized system?"

This focus on issuance misses the fact that it is primarily secured by decentralization itself. Securing against a 51% attack is different than securing the system as a whole. There is plenty of game theory behind why a 51% attack is not fatal to the system.

And if it is predictable issuance that secures Ethereum, ethereum is extremely insecure today, because it changes issuance often.

Perhaps more predictable over the long run than issuance.

It also leads to distortions that eventually lead to instability. Inflation isn't hated by sound money people because of devaluation in spending.

1. inflation devalues money in paying expenses
2. it steals value from savings
3. it distorts the economy toward different lines of production
4. it leads to instability, booms and busts

It's not borrowing, it is diluting and distorting.

Money is a tool. Inflation is not just stealing value from other supply, it is stealing usefulness from existing lines of production.

It is dilutive, but it is also distortive. It mutates the capital structure of the entire economy toward inflationary conditions.

With bitcoin the capital structure of the economy knows the future and can plan perfectly ahead of time. The economy can slowly transition away from inflationary conditions to no inflation.

These sentences do not describe Ethereum's issuance. That is absurd. Ethereum people think if they really promise something hard enough, it will happen. But their 1559 and PoS dreams are moving away from predictability.

Once again, fully is a high bar. I once asked what Eth's issuance will be 1 year from now and could not get a fully predictable answer.

Issuance is NOT fully predictable. On Ethereum it arbitrarily changes roughly twice a year, and in PoS those changes can possibility get much worse, as decisions will move up the consolidation of wealth ladder to an explicit group of central planners instead of an obscured group like today.

Again, fees are predictable to a significantly high degree. We can even predict what will happen if certain other economic conditions are present and react prior to significant changes to fees.

IOW the volatility of fees can incentivize innovation of strategies to mitigate that volatility like Layer 2 fallbacks or derivatives.

Short term volatility won't ever completely disappear, but then again we don't want it to, because it provides the market with valuable price signals. This criticism of fee volatility does not take the benefit of this volatility into account whatsoever.

In regards to bitcoin, there is no question whether or not the transaction fees will be sufficient to continue the network. The independent variable is price of bitcoin, everything else in a dependent variable or constant.

For instance, if the value of transaction fees goes down, hash rate will go down, difficulty will adjust down, and the system will continue as normal. Everything is dependent on price.

The level of "security" is not a 1:1 measurement as we will discuss later (maybe security is defined), but it is admitted elsewhere that if the value of the network decreases the incentive to attack also decreases. Any ratio of hash rate to incentive to attack is therefore more stable than directly implied by only looking at hash rate. If hash rate falls by 50%, the incentive to attack also likely fell significantly, therefore the effective "security" change is undetermined. (If I understand the working definition of security in this essay).

We can safely assume that the ability to 51% attack the network increases as price decreases, but by how much we cannot say. Just to state for the record at this point of reading, security against a 51% is necessary but not sufficient to describe the "security" of a consensus.

I'd argue this whole argument about fees versus issuance is backward.

Issuance is the headline number. It is easy to adjust in a central planning fashion. Where fees are market driven and would need to be adjusted and centrally planned only through indirect means like raising the block size.

They are both "baked into the protocol". It's false to say that issuance is and fees are not. Fees are a result of that very same protocol.

"Completely" is a very high bar. Fees are not completely unpredictable. In fact, you are predicting right here that fees go up and down.

Fees are predictable but volatile, which will lead to specific behavior which we can likely anticipate if we spend a few minutes thinking about it.

I have to decode this, the claim is that 1559 burns Eth and therefore acts in a reverse direction to issuance. Where issuance dilutes value, burning fees will concentrate value back into existing Eth supply.

It is an interesting argument. But it falsely equates random accidental (or even free market purposeful) burning with programmatic burning. Programmatic burning distorts incentives. This is easily demonstrated by highlighting the incentives for each. The possibility of accident burning creates an incentive to manage keys and wallets, and to prefer more secure strategies for ownership and holding. Accidental burning is still possible if programmatic burning is implemented, but this protocol based burning adds new disincentives to spending. It might also add incentive to use layer two which could cause the use of less secure layer 2's because people feel an unnatural pressure to not spend tokens on chain. In a system that depends on on-chain execution of smart contracts, any disincentive to on-chain fees will have an outsized effect on economic activity.

Security again. What is it?

Here he doubles down on the concept of soundness. What definition is he using, because I know it's not the long held definition? Above he claims "efficient consensus [mechanisms] create less net-selling pressure on the asset, making the asset more sound." I'm assuming he means compared to the asset of inefficient consensus mechanisms.

This is very confusing, so what is sound? I'm trying to work this out, so the asset is more or less sound depending on the efficiency of the consensus mechanism, which is the ratio of security to cost. Okay, so less cost to secure a consensus the more sound the asset, given security is equal.

However, we haven't defined security. I've claimed that PoS decreases security due to consolidatio

This is plain wrong. The conclusion is totally opposite of actual truth. Because stakers don't have large operational costs, PoS mechanisms have less security.

So here we run up against this idea of security. Perhaps he addresses it below.

This is a large claim. It hinges on the definition of security and the derivative efficiency (as we touched on above).

Efficiency is a derivative here because it is being defined as a ratio of security to cost. So, the whole thing pivots on the definition of security.

Then we get the second claim, that efficient consensus "engines" create less net-selling pressure on the asset. This is just out of the blue. Perhaps he addresses it below, but here it's already an easy No Way.

There is no such thing as "NET selling pressure". All bitcoins (money in general) is held by someone, every seller must have a buyer. One can say there is net selling pressure at a specific price, at a specific moment in time, but that changes from moment to moment. It has nothing to do with miners selling bitcoin they mine. The counterargument is likely more accurate, that the distribution and circulation provided by mining increases economic activity and demand for coins at any particular price, a gradual increase in demand at any given price. Hence, number go up technology.

This is also a well-trodden argument. At first blush this seems simple, miners induce cost and must pay for that with revenue (bitcoin) so they sell the bitcoin.

However, all bitcoins (money in general) is held by someone. "Selling pressure" for this fledging asset is very much a positive and promotes circulation of bitcoin.

This is also a "too crowded, no one goes there" problem. Miners wouldn't incur as many costs if they couldn't breakeven. There is an economic supply and demand principle that this overlooks. If miners' selling pushed the price down, miners would be incentivized to not upgrade their miners, sell their miners, or hoard their coins and pay with debt. The market here is self-balancing, with the ultimate output of circulation of coins.

PoS does not have this incentive to circulate, which is extremely limiting. It incentivizes hoarding and concentration of wealth, and hence a reduction in economic activity. PoS advocates will openly say that PoS is not a distribution mechanism because they don't understand the necessity for it.

When you pair PoS incentive for concentration, with 1559 discussed below, its added incentive to not circulate coins, you get a very retarded (slow) economy.

Relative to what? There are too many debunks of this to list here, but I'll just say that the resources would be used elsewhere if not in mining.

This is an oversimplification. It incentivizes efficient consumption of energy. That is more than amount and cost, it is the effect of use.

For example, a miner could burn a ton of energy mining bitcoin with CPUs, but they don't because that is not efficient. ASICs are 1000's of times more efficient. Now the R&D that goes into new chips is also incentivized, finding and developing new energy sources is incentivized, even developing new software to run pools more quickly and efficiently, the economics behind that software's trade offs (like allowing individual miners to choose transactions for inclusion versus the pool deciding), etc etc etc. You can come up with an infinite number of smaller incentives that PoW provides to the market. And that's only the offensive side of things.

Saying that it only incentivizes "as much electricity as possible at the lowest cost possible" is economically wrong.

I agree with this general sentiment, but...

NFTs are not a way of promoting sustainable and great art. Just look at Beeple's Everydays, they aren't what anyone would call high art.

Art is a very very old profession and it has never been all that lucrative for the artists. Only in very recent times have a few musicians been monetarily successful and still fewer other types of artists. This seems like trying to not only solve a technical problem but a societal one. I don't recognize that societal problem.

I think art is essential, I promote art appreciation, I always give money to street performers and support local artists, but it's simply not very lucrative to to be an artist because artists are not businessmen and neither are the customers. The vast majority of profit goes to the person who can manage the logistics of the whole thing. In an NFT world that would be the certifiers I guess.

You can try to abstract that management logistical role away, but I don't think that will be very easy. IMO rich patrons are the way to go. Their contribution is altruistically providing the platform.

Perhaps, rich patrons could provide centralized NFT platforms and sponsor artists by giving them a spot on their platforms where those select artists would be able to control their art and profit. That would bring attention to the artist and provide a scalable solution. Win-win.

This whole situation for artists shouldn't necessarily be different. Who are we to question the market? There could be arguments made that artists have slowly been becoming more successful and in charge of their art as it were, but I think that is a characteristic of fiat money.

Many things are digitally scarce. PGP for example. Anything with cryptography. Bitcoin, and its associated block chain, used decentralization on top of digital scarcity to specifically create money.

Bitcoin's formula is

digital scarcity -> decentralization + block chain + PoW -> money

NFTs shouldn't use this same formula. Instead, they could use something like this:

digital scarcity -> centralization + neutral 3rd party platforms + community -> NFTs. You shouldn't try to shoehorn them into decentralization or blockchains when it's not needed, that's when you run into very significant trade offs.

That doesn't mean it can never work, but I don't think it will work with a bitcoin formula applied to NFTs. It would probably not use a block chain and not use PoW.

Yes, but very few people are buying things that are at risk of being forged. I'm personally not a collector, I'm aware it's pretty big business. I'd assume here that this depends on the item. A person might have incentive to buy a good forgery that they can sell higher later. And on and on it goes.

You could also sign the actual digital art right? Like put your signature in the art itself.

I didn't know this was a thing, like actually forging a private key signature?

Probably less, because your decision would have been driven by a profit motive instead of art appreciation.

Radiohead's model is sustainable. It still might be. Fans giving money, yeah, this is crowdsourcing pretty much. NFT schemes are not sustainable long term.

I think there are three different NFT use cases being claimed here. 1) long term ownership of some unsecured (in a financial sense) digital right, 2) short term bidding market for short term good, 3) successfully supporting the artist.

But I get the feeling that these schemes are motivated most of the time by an idea that artists are underpaid. Or that there is some inefficiency in the market that is stopping artists from getting fairly compensated. That is not the case, there is no such inefficiency that NFTs can solve.

You can't gamify art compensation. The only thing you'll do is crowd out artists in favor of business people or scammers.

Anyway, let's keep going....

I agree. But the appropriate analogy is to jpegs of Casascius coins.

I agree that digital signatures from the originator can be valuable. Like an LP signed by the band. But it's only the signature that is important, and only the ability to verify that signature is legit.

If there was zero cost to reproducing the physical album and near zero cost to forging the signature, the value of that signed album would approach zero as people arbitraged the spread by creating copies.

This is incorrect. Shares are fungible. Is the provenance shared between separate NFTs of multiple issuances?

Interesting, you are comparing multiples of the same NFT as forks. Very interesting, I have to think about this one more.

This part is short considering it is a big critique against NFTs.

Yes, there is a market incentive to host your own content, but that's not the argument that I've seen made. What I've seen made is people not hosting their own NFT records and trusting others on IPFS or a trusted third party to do it, so what's the incentive for other people to host your content?

There is also a false comparison here. The NFT records are dependent on two sources from what I understand, ethereum nodes and IPFS nodes. Bitcoin nodes are a single source, while NFTs rely on two (or three if you include the artist).

But I agree, that if all bitcoin nodes disappeared bitcoin would approach zero very fast.

This is incorrect. The equivocation of "value" from above is coming back to bite you. What are you talking about, subjective value or exchange value?

For your part 1) "holders believe their coins have value", is not the case. They either KNOW their coins have exchange value, or KNOW their coins have personal subjective value. There is no belief.

The opposite act of applying the digital signature (what this section is concerned with), namely holding, is a calculated act based in part on belief and in part on experience.

Your second point 2) is worded in a confusing way. People take part in exchange because they subjectively value the other thing more than the thing they already possess. If a person values sats more than the item they are trading for it, of course they are willing. In free exchange there are no unwilling parties.

Of course, this goes the other way. The person giving up sats in exchange for another item values the sats less than the item they are giving up. They are willing to do the reverse.

Your third point 3) is the part I have the biggest problem with. Perhaps I don't understand exactly what you are saying here. There are several ways you can transfer bitcoin, not all require a digital signature from the sender. Big example, Opendime.

The digital signature needed to spend bitcoins on the network are part of a broad whole network. If one invalid signature goes through, it's all over. Everyone depends on every signature.

Signatures in bitcoin are not tied to an originator. They are totally fungible within a transaction, IOW no specific entity must sign, it doesn't matter if Adam Back signed some tainted coins 20 transactions ago that are now in my possession, and I couldn't tell anyway. Signatures not signers. Signatures are fungible in bitcoin, where they are not fungible in NFTs. In fact, that is what makes NFTs non-fungible, the signature alone from the originator.

We aren't talking about mere access, like in temporarily viewing the Mona Lisa in real life. We are talking about a digital file that you can use in any way anyone else can use it, complete and total control of that file, in every single way possible that the owner of the NFT can, anytime, anywhere.

It's as if you could clone the Mona Lisa atom by atom at no cost and take it home or transfer it across the globe also at zero cost.

The only thing unique is the digital signature on the NFT. That digital signature conveys no unique access or ownership to an identical version of that file. In this case it is a distinction without a difference.

This is a repeated equivocation of subjective valuation with monetary or trade value.

Very cool!

I don't know how the paragraph relates to the heading. Here you address the subjective value, but subjective value and exchange value are two different things. Artists must sell their art if they want to make a living from it.

Why? They could easily prove it's them by validating a message with the same key.

These things only introduce attack vectors. What if you had some 3 of 5 multisig scheme and 3 people colluded to cancel your NFT because you retweeted Trump? This is asking for horrible problems.

Relying on a centralized authentication in general instead of your own private key (admittedly I don't know why you'd need to authenticate something with a history) is a recipe for disaster from cancel culture. It could be anything mundane too. Perhaps regulators in the US didn't like your explicit lyrics, and went after certifiers?

All this is to say you don't need a blockchain or decentralization for NFTs and it actually makes the functionality worse.

I agree here.

All these things don't show the versatility of NFTs they show the trivial nature of creating a substitute. I don't know why any of this would need a blockchain either.

*And the limitations of the technology. There are trade offs for everything.

Side note about this kind of idea: serious professional cryptography experts won't evaluate a new hashing algorithm until it's 10-20 years old. Not because it can't possibly work, but because it almost certainly will be trivially gamed or cracked. It's the same with these economic token games. They will take ages to go over every detail of the code and every claim, or we can just wait 5 years and see what's survived. Almost certainly 99% of schemes will be cracked and no longer seriously considered viable.

Not completely. They are also the basis for blocks, and transactions can also take place without signatures. I'm trying to say signatures play a large role is all of bitcoin.

Yes, this paragraph is a large part of my general position, that the uniqueness of the artist's or originator's signature is the thing of value and that it doesn't need a decentralized network.

A signature does not make it secured against dilution. That artist could decide to make a 1000000 more copies. Or a million copies from copycats with the same file. The only thing of value is the signature.

There is a difference between controlling bitcoin and controlling an NFT. Bitcoin is ruled by the protocol, partly and wholly, bitcoin does not exist outside the protocol and vice versa. NFTs are ruled by subjective judgements of humans.

When I send bitcoin, everyone everywhere is involved with that transactions to prevent double spends. We encourage people to run nodes to have more validators for us and against breaking the rules for everyone.

NFTs do not meet that same burden. They can be double spent if the originator makes a new NFT, revokes the old one, or a copycat makes a new NFT for the same object/file (with a different signature of course). None of that is part of the underlying protocol rules. The art is separate from the network.

It's the act of copying at near zero cost and reselling that is what is being claimed. The legal right to sell the music is what has value. Of course, the music has subjective value, but that is an equivocation. Those two values are different.

This is not exactly correct. The argument is the value of NFTs can be undermined by practical means of copying. Not that they have no value. You shouldn't expect them to hold their value.

In other words the NFTs value will approach the substitution cost, and for a digital file that is almost zero, correct.

Fair enough. We will look at the economic concept by itself then, but when rubber meets the road, I'm assuming we must address the technical limitations of the platform. Especially because these platforms all obey the laws of trade offs that bitcoin obeys (just altcoiners don't want to admit it).

I understand why this model fits within the ethos of bitcoin, many many things do, but that fact alone does not make it viable, it at most makes this a topic we would be interested in fully exploring.

This is the main point!!

No shortage of demand for USTs

No mention of this affect on number of dollars. This is deflationary.

She skips them saying it's not the same thing. Triffin was worried about trade surpluses, not trade deficits, it's exactly the opposite without a crossover point.

Why is this? Answer that and it all makes more sense.

You'd expect if the dollar is weakening, US exports would harm emerging markets exports. Why would a weakening dollar be good for emerging markets?

Answer: they are just debt bubbles.

Firstly, any CBDC or DLT coin would use the same "technology".

Second, no identifiable issuer is keeps there from being a manipulator. It BUILDS trust in the system, taking it out of the hands of corruptible humans. Similar to the atomic weight of gold.

Would you trust a central board to decide on the properties of gold? Would this manipulatable metal build more or less trust in it than a metal controled by nature.

This is flat wrong. The integrity of the records is ensured through decentralization and proof of work. DLT integrity is only as good as its resistance to malicious actors. That resistance comes from the two things I listed.

It does not matter how many nodes you have on a network if they are subordinate to a central party. Period. It doesn't have to subordinate programmatically it can be subordinate politically. It's the same thing.

The integrity of the records is not ensured if there is a trusted third party! Period!

Solving the double spend problem is not possible without getting rid of central party. They can double spend, revert, change, manipulate, block, seize.

LOL. A blockchain is just a slow, small, non-scalable database.

She is signaling to other central bankers that are as minimally educated on this as she, that she knows blockchain is a subset of DLT. LOL

Europe is already a dead man walking. They are scared.

They are scared of other digital money, specifically they are scared of USD stablecoins that are already growing quickly.

Why isn't the market providing a EUR stablecoin? It is but no one wants it.

Maybe this is why the ECB feels it must step in, because the market isn't providing a EUR stablecoin, so they must do it or else the EUR will lose market share to USD stablecoins. WOW very big admission.

This also can explain why the Fed and Powell are so hands off, because there is already USD stablecoin providers. But those central banks which the market doesn't provide stablecoins for they are the ones pursuing CBDCs most fervently.

Big admission here. This should be interpreted as a defensive move against bitcoin and other coins like a facebook USD stablecoin.

Unique? Yes, what is it?

"Means of payment"? She is saying central bank money is a means of payment.

"Only offered physically in the form of cash." There it is, central bank money is cash, notes and coins. They are attempting to expand this to electronic cash. LOL Cash is an extension of government, it is "government money" not central bank money.

Bitcoin is called "electronic cash" in its whitepaper. Now the central banks are needing to do the same.

This is a very key point. Instead of only "printing" non-fungible reserves, they want to be able to print retail money expressly.

What she is saying here, is she wants to completely change the role of the central bank and completely change what money is. She wants to create a form of central bank money that is fungible outside of the central bank.

This is a broad sweeping change. It is a dramatic change. I don't think they realize how dramatic a change this is, because they don't recognize that reserves are not fungible money to the system. It's a balance sheet asset only. Reserves are not money in this case. But now they want to actually print money.

This is very dangerous.

This is the primary hurdle for "payments", the regulation. Payments are trivial, it is the regulation that stops payments from flowing quickly and freely around the world.

The "supervision mechanisms" are the problem.

New forms of private money aren't emerging to "meet the demand for digital means of payments." They are routing around regulation and other things. The demand is for a free flow of payments.

It's a small point, but shows the bias toward every issue being a means of payment issue.

This part is important because many people claim the governments will consume the central banks. She is saying here that without their independence they would have a hard time maintaining trust and value of the currency.

Look at the elections, 50% of all voters think it was fraudulent. Congress's approval rating is single digits. People don't trust the government.

Government versus banks. Deep rabbit hole. Banks versus central banks, banks will win. Banks versus governments, banks will win.

But it is backed by an asset, debt. It is not convertible into that good, because it is debt. It is similar to a gold coin doesn't need to be convertible. However, where in gold you only have to trust mother nature, with debt you must trust a sovereign.

The rise of the trusted third party TTP. We've said this for a long time, bitcoin is the first money that can be sent outside your immediate location without a TTP. See Bitcoin & Markets 101 series.

Only when a fiat is based 100% on a good that is defined by another party, i.e. debt, is the "reputation of the issuer and credit risk" a concern.

Here is MMT, but notice this is a modern era thing, not in line with MMT thought that the State created the first money and that all money comes from the State.

These are still forms of the underlying money, those instruments did not replace the good used as money, they were features added on top.

This isn't the case. The Real was one of the things that enabled international trade. It wasn't until approximately the 18th Century until bookkeeping was primary over coinage.

This article outlines the true concerns and thinking of the ECB and likely most central banks, with the possible exception of the Fed. 1) If they don't create a CBDC it's possible USD stablecoins will displace their currency. 2) They think its about payments, instead its about monetary competition. 3) Central banks have a competition advantage and it's not the coercion of legal tender (LOL), it's trust.

Ending with affirmation of stability and trust. But this whole article was saying how slow, weak and behind the government systems are.

Don't hold your breathe. Just think about it for a second, does this sound plausible?

Like to enable exploitative exploitation and redistribution? The government is the largest abuser of personal data and the largest drag on the market.

I'm from the government, I'm here to help.

See how the goal posts have shifted from the 3 functions of money? Now, it's not about volatility, it's about integration.

Governments don't do tech well, let's face it. If the priority is ease of use and smooth integration, the market can do that. Just get government regulation out of the way.

Competition is not a real concern, the data and PII is a concern, I agree.

Again, their primary concern.

Here is their main fear. They want to protect banks. What they don't quite get yet, is that stablecoin reserves have to be held somewhere. Banks still have a role.

OMG the market might be able to function? Dear me.

This is not what a person considering MMT would say.

Government doesn't do this. LOL

Nailed the first three problems, the fourth is a government problem, not an economic one.

She has not come to grips with the problems. LOL Who is going to pay for it and how?

Don't come calling to bitcoiners.

This is the new IMF mandate right here.

They will be out of business in 20 years, or maybe forgotten.

I don't know what this means.

If climate change is critical, and I'm not saying it isn't, and these profoundly inept public officials can see it, I guarantee private business sees it, they see a way to profit from it, and will do it just fine without their "help."