Read 76+3 (and took notes on 26) sub-categories (out of 98—from eight parts)

SECURITY MODEL (5/22/22)

Axiom of Resistance

In modern logic an axiom is a premise, it cannot be proven. It is a starting assumption against which other things may be proven. (p. 19)
There is an assumption that it is possible for a system to resist state control. This is not accepted as a fact but deemed to be a reasonable assumption, due to the behavior of similar systems, on which to base the system. (p. 20)
One who does not accept the axiom of resistance is contemplating an entirely different system than Bitcoin. (p. 20)

Censorship Resistance Property

Resistance to censorship is a consequence of transaction fees. (p. 21)
As shown in [Proof of Work Fallacy], hard forks cannot be used to selectively evict the censor and instead accelerate coin collapse. (p. 21)
Only the state can perpetually subsidize operations, as it can compel tax. (p. 21)
Censorship resistance arises only from the fee premium. The subsidy portion of the block reward does not contribute to censorship resistance because the censor earns the same subsidy as other miners. (p. 22)
It is also possible that a censorship soft fork could lead to a price increase, as white market business embraces the associated state approval. Nevertheless, for the coin to survive, its economy must continue to generate a fee premium sufficient to overpower the censor. (p. 22)
It cannot be shown that the economy will generate sufficient fees to overpower a censor. Similarly, it cannot be shown that a censor will be willing and able to subsidize operations at any given level. It is therefore not possible to prove censorship resistance. This is why resistance to state control is axiomatic. (p. 22)

Centralization Risk

Cockroach Fallacy

Consensus Property

People generally think of consensus in the context of a fixed membership, like a jury. In this model consensus implies that all members must agree. (p. 27)
But because Bitcoin membership is permissionless and therefore not fixed, there is always complete agreement, as implied by membership. (p. 27)
In this model consensus refers to the size of the membership (economy), not a condition of agreement. (p. 27)
- Consensus: agreement of members (jury) <> membership size (bitcoin)
A consensus may fragment ([Fragmentation Principle]) or consolidate ([Consolidation Principle]). Generally a larger consensus provides greater utility and greater security by more broadly sharing risk ([Risk Sharing Principle]). (p. 27)

Cryptodynamic Principles

Custodial Risk Principle

Hearn Error

It is evident that states actually prefer to ban popular things. (p. 32)

Hoarding Fallacy

Jurisdictional Arbitrage Fallacy

Other Means Principle

Patent Resistance Principle

Unlike copyright, patent is an anti-market force.

Permissionless Principle

Bitcoin is designed to operate without permission from any authority. Its [Value Proposition] is entirely based on this property. (p. 42)
Bitcoin is therefore inherently a black market money. (p. 42)
Its security architecture necessarily assumes it is operating without state permission ([Other Means Principle]). (p. 42)
Any system dependent upon the value proposition of Bitcoin must also be black market. (p. 42)
- E.g., the mining industry—although much of bitcoin mining has become white market, in the scenario where the state initiates censorship attacks, new miners will emerge from the black market (e.g., see [Reserve Currency Fallacy]).develop

Prisoner’s Dilemma Fallacy

Private Key Fallacy

Proof of Work Fallacy

Public Data Principle

Qualitative Security Model

Threat Level Paradox

Value Proposition

STATISM (3/(4+1)/5)

Fedcoin Objectives

The essential Fedcoin distinctions from Bitcoin allow the state to arbitrarily create new units (seigniorage) and deny transfer (censorship). (p. 69)
- The seigniorage objective can be achieved by a hard fork that introduces one new consensus rule. (p. 69)
- The censorship objective can be achieved by a soft fork that precludes confirmation of transactions that lack state signature. (p. 69)
Preventing the state from compelling the use of these forks is the central purpose of Bitcoin system security. The economy guards against the hard fork and miners guard against the soft fork. (p. 69)
- The economy here means the set of all merchants (or users).

Inflationary Quality Fallacy

Reservation Principle

The term “reserve currency” refers to a state hoard, as required for settlement of accounts with other states. (p. 72)
States buy reserve currency from people using monopoly money, foreign exchange controls and direct taxation. (p. 72)
A “gold standard” is one in which the state collects gold as a foreign exchange reserve, and individuals reserve in claims to a “standard” amount. (p. 72)
- The irredeemably was extended to other states in 1971, officially ending the gold standard in the United States. No longer a debt of the state, the Dollar transitioned from a representative currency (i.e. note) to fiat. (p. 73)
  - E.g., see Ammous’ The Bitcoin Standard, Chapter 4.
The state collects the reserve money into its hoard, which represents its ability to settle its own debts with other states. While people do still hoard the reserve money, it is subject to onerous constraints[266] on its use in order to preserve the tax benefit of the state’s monopoly money. (p. 74)
- Constraints include: legal tender laws; capital controls; tax policies; bans or restrictoins.
The use of gold as a state reserve offers no monetary benefit to individuals who must still trade in monopoly money. As shown in [Reserve Currency Fallacy], Bitcoin as a state reserve can do no better. (p. 74)
- Viz., unless individuals are allowed to transact freely in the reserve asset (e.g., gold or bitcoin), its presence in state reserves does not shield them from the risks of fiat currency, such as inflation or government control.
With the bulk of actual bitcoin acceptance in the hands of the state, with people trading in money substitutes, there is nothing to restrain the state from introducing both arbitrary inflation and censorship. (p. 74)
- The Bitcoin Standard as advocated by Ammous and Saylor will recreate situations similar to previous regimes where the government confiscated the reserve currency (e.g., gold) from people.develop
  - Bitcoin’s [Value Proposition] is censorship resistance, and not number-go-up.develop

Reserve Currency Fallacy

Potential scenario:
- In order to obtain a reserve of bitcoin (BTC) the state issues negotiable Bitcoin Certificates (BC) in exchange for bitcoin. (p. 75)
- This may be accomplished by seizing centralized accounts (compelling conversion) or by market trading, both of which have been done to build gold reserves. (p. 75)
- This is how states ended up with gold and people ended up with paper. (p. 76)
- The central bank must be trusted to account for BC issuance, and ultimately this means everyone trusts the state to not engage in easing. (p. 76)
- The reason there is a difference between legal tender and reserve currency is to enable inflation of the currency in use (taxation) while holding a better money in reserve (hoard). (p. 76)
  - Legal tender: BC <> reserve currency: BTC
Without individuals validating BTC received in trade, there is nobody to refuse invalid BTC as it comes to be redefined by the state. In this case censorship and inflation can easily be introduced, invalidating the theory. (p. 276)
Only black market Bitcoin transaction and mining can resist this transition. (p. 76)
This provides little economic pressure on the state to maintain consistency with Bitcoin consensus rules. (pp. 76-77)
- The state and mining:
  - Honest mining results in the growth of bitcoin network—which is inherently black market money.develop
  - Similarly, censorship attacks not only burdens the people with tax but also can result in the emergence of new miners due to increased transaction fees pressure—the same outcome with the honest mining scenario.
    - Obviously, censorship attacks can succeed.
  - The surest way for the state to undermine the bitcoin network isn’t a direct attack, but a slow and strategic capture of its supply—i.e., a strategic bitcoin reserve.develop
Layering preserves the [Cryptodynamic Principles] of decentralization, while “backing” is full abandonment of them. Bitcoin cannot be sustained as predominantly a backing money for central bank notes. People must trade with it for it to be secure. (p. 77)
- People must transact with BTC, and not with BC—as discussed in the final paragraph of [Reservation Principle].
It is certainly possible for Bitcoin to be held by state treasuries, but this offers no transaction scaling or other advantage to people. (p. 77)
- It will only benefit the state—states will end up with bitcoin and people with paper.

State Banking Principle

MINING (2/17/23)

ASIC Monopoly Fallacy

Balance of Power Fallacy

Byproduct Mining Fallacy

Causation Fallacy

Decoupled Mining Fallacy

Dedicated Cost Principle

Efficiency Paradox

No matter what technology improvement is introduced, the cost of transaction confirmation remains the sum of the reward for confirmation. (p. 100)
An increase in hash rate for the same cost results in a difficulty increase to maintain the block period, increasing cost accordingly. (p. 100)

Empty Block Fallacy

Energy Exhaustion Fallacy

Energy Store Fallacy

The theory errs in the implication that energy value expended in mining is unique in its contribution to value. (p. 106)
Furthermore, it is a similar error to assert that money is a store of value. Money is a store of money. Only objects can actually be stored. The value of money derives entirely from the value of what it can be traded for, to the people trading. As value is subjective, it is human preference, subject to constant and unpredictable change, and cannot be stored. (p. 106)
- Viz., the extent to which bitcoin will maintain its purchasing power relatively better vs USD ultimately comes down to people.develop

Energy Waste Fallacy

Fee Recovery Fallacy

Halving Fallacy

Impotent Mining Fallacy

Miner Business Model

Pooling Pressure Risk

Proximity Premium Flaw

Relay Fallacy

Selfish Mining Fallacy

Side Fee Fallacy

Spam Misnomer

Variance Discount Flaw

Zero Sum Property

ALTERNATIVES (5/10/17)

Bitcoin Labels

Blockchain Fallacy

Brand Arrogation

Consolidation Principle

Dumping Fallacy

Each party is selling (and buying). As a trade the action is symmetrical. (p. 146)
In contrast to dumping, trading at market price doesn’t reduce price because it is not subsidized. (pp. 146-147)
There is a related theory that reduction of hoarding generally reduces exchange prices of the hoarded property. This is true, however a transfer is not a reduction to hoarding levels unless the buyer of the hoarded property subsequently hoards it less than the seller. It is an error to assume this is the case. (p. 147)

Fragmentation Principle

Genetic Purity Fallacy

Hybrid Mining Fallacy

Maximalism Definition

As people fail to find close substitutes ([Substitution Principle]), activity moves to more distant ones. In the case of electronic payments this is generally state money. (p. 154)
Maximalism is distinct from shitcoin ([Shitcoin Definition]) awareness in that it is characterized by promotion of one Bitcoin over all others. (p. 154)
Proponents often express the contradictory theory that no other coin could be competitive with their preferred coin. If this were the case there would be no reason to advocate for a single coin. (p. 154)

Network Effect Fallacy

Proof of Cost Fallacy

Proof of Memory Façade

Proof of Stake Fallacy

Proof-of-work is “external” proof.
Proof-of-stake is “internal” proof.
It is true that both PoS and PoW delegate control over transaction ordering to a person in control of the largest pool of certain capital. (p. 160)
The distinction is in the deployability of the capital. PoW excludes capital that cannot be converted to work, while PoS excludes capital that cannot acquire units of the coin. (p. 160)
In [Other Means Principle] it is shown that censorship resistance depends on people paying miners to overpower the censor. Overcoming censorship is not possible in a PoS system, as the censor has acquired majority stake and cannot be unseated. As such PoS systems are not censorship-resistant. (p. 161)

Replay Protection Fallacy

Shitcoin Definition

A shitcoin is any system that is not cryptodynamically secure ([Cryptodynamic Principles]) yet purports to capture the value proposition ([Value Proposition]) of Bitcoin. (p. 164)
Proof-of-stake technologies are shitcoins ([Proof of Stake Fallacy]). (p. 164)
While there may be implementations of Bitcoin that are more secure than others, these are matters of degree. (p. 164)
No Bitcoin can be shown to be absolutely secure. (p. 164)
- Related: There is no absolute security.develop
As such the term is not reasonably applied to any Bitcoin. (p. 164)

Split Credit Expansion Fallacy

In state banking, the cost of capital to the bank’s customers is reduced. (p. 165)
- Related: Allen Farrington’s case for the price of capital as bitcoin’s killer-app.revisit
In a free market of banking, banks are simply investment funds. (p. 165)develop
Market credit expansion is an increase in the lending of capital, as opposed to its hoarding. Increased rates of lending are a consequence of reduced time preference, and reduce the cost of capital. It is impossible to show that creation of a split or new coin (or anything else) reduces time preference. As such it is an error to assume that these creations either increase the availability of capital or reduce its cost. (pp. 165-166)
- Viz., reduced time preference brings about reduced cost of capital (i.e., more lending activity vs hoarding)—the increase of monetary units is the effect and not the cause.develop
  - I.e., central bank money printing does not lower time preference—it just distorts interest rates artificially.develop
    - Time preference is preference—i.e., it’s subjectivity means nothing necessitates it to move one way or other (i.e., higher or lower time preference).
      - Related: 12-1e Nothing is necessary = Everything is contingent.develop

Split Speculator Dilemma

ECONOMICS (3/(7+2)/12)

Credit Expansion Fallacy

Depreciation Principle

Expression Principle

Catallactics concerns itself with expressed preferences, specifically production, trade, and consumption.
It is not necessary to contemplate disembodied spirits, as no action is implied.
Catallactics is not concerned with legal, theological, or ethical concepts of humanity. The Turing Test is sufficient criteria for the definition of humanity. The catallactic distinction is in the formation of preferences, independent of any other actor. A person in this sense is a decision-maker, as distinct from a rule-follower.
- Viz., knowledge-creator (because explanation precedes decisions as well as rule-creation).develop
It is sometimes argued that time is valuable because life is temporary. This is not the basis of time preference ([Time Preference Fallacy]).
- Because time preference is preference (e.g., see [Split Credit Expansion Fallacy])—only more money can imply lower time preference (see [Time Preference Fallacy]).
- Because scarcity per se doesn’t imply value (e.g., see [Scarcity Fallacy]).develop
The impermanence of a person is of no consequence to catallactics. A person may live forever yet is still presumed to exhibit a preference for goods sooner than later. Infinite life does not imply no desire to consume.
- Economics of Gods.revisit
Action is the expression of human preference through goods. Processes directed by humans are action, processes directed by machines are goods. In other words, production/labor, trade/theft, and leisure/waste are actions, while websites, assembly lines, and cars are goods.

Full Reserve Fallacy

Inflation Principle

A money is presumed to change in purchasing power in proportion to the demand for goods that it represents. In other words, with twice the amount of money each unit of the money will trade for half its previous amount of goods, as the increase in goods implies lower demand for them. (p. 191)
Economic growth is not price-inflationary in a free market. (p. 192)
- Because the miner (e.g., of gold or bitcoin) must use money to purchase the hardware—which will be depreciated in the process of mining.develop
The Cantillon effect is valid when applied to monopoly monies, but has no relevance to market money—a fact that seems to have escaped economists since Cantillon. The basis of the distortions explained by Cantillon is seigniorage, not money production. (p. 192)
Market production of money, just as market production of all things, is not only neutral in real effects but also price neutral. (pp. 192-193)
- Viz., money does not shift wealth, distort prices, or alter real economic structures—if produced in a free market.develop
On Mises’ tautology (that had the gold not been produced, prices would be unchanged):
- But without a change to the money supply, had the goods been consumed in other production, the implied economic growth would decrease prices; and if the goods had been consumed in leisure, the implied economic contraction would increase prices. (p. 194)
- In other words, Mises’ conclusion is perfectly reversed. The money relation is preserved because of money production and would change due to lack thereof. (p. 194)
- Mises incorrectly assumes money demand and money creation are independent processes. (pp. 194-195)
  - Viz., the creation of market money is propelled by the demand—the supply increases because there is demand.develop
Market money is subject to monetary inflation, yet produces no price inflation. (p. 195)
- Does the statement also hold when the word money is replaced with any other market goods?develop
The effect of dishoarding <> market money monetary inflation (another critique of Mises):
- There is no cost of “dishoarding” (trading the money), so doing so is unlike money “flowing from the gold mines”. (pp. 195-196)
- A generally increased level of hoarding gives the impression of greater wealth, but this is illusory. In order to be of value to people money must be traded for goods, at which point the illusion evaporates. (p. 196)
  - Viz., liquidity cost resulting from high time preference activity—hoarding.develop
- Unlike with mining, the effect of dishoarding is uneven. The first to do so obtains the highest exchange value and the last the lowest. The speculative strategy of “pump and dump” ([Speculative Consumption]) is based on exploiting this unevenness. (p. 196)
Furthermore, increased hoarding implies higher time preference ([Time Preference Fallacy]), which is the ratio of hoarded capital to lent capital (capital ratio), reflected as the interest rate. (p. 196)
The same amount of goods exist (wealth) at the point where hoarding increases. Yet this increase proportionally reduces production, due to increased cost of capital. This creates a permanent and compounding reduction in wealth, as the time lost in production is never recovered even with subsequent dishoarding. (p. 196)
- The following sentences should also be read while keeping in mind the absurdity of simply advocating hoarding.
Independent of economic growth (or contraction), a change in demand for a market money implies a proportional change in demand for, or supply of, goods traded for the money, as opposed to another money or barter. (p. 196)
- E.g., bitcoin vs the dollar.develop
A money exhibits monetary value only in its ability be directly or indirectly exchanged for things of use value, as directly implied by the money relation itself. (p. 196)
- Viz., if people don’t produce the value of the money collapses. What matters is production—there is no trade if there is no product.develop
On commodity money (i.e., gold—not bitcoin):
- Where the value of goods required to produce a commodity money increases or decreases, decrease or increase of prices in the money is implied respectively. (p. 197)
  - E.g., if the cost of mining gold increases, the value of each unit rises, leading to deflation (other goods will be cheaper relative to gold).develop
    - Viz., if new technology (i.e., knowledge) comes along that cheapens the gold mining, the monetary inflation (goods will be more expensive relative to gold) ensues—yet without distorting the economic structure (as in under fiat monetary inflation). Not only that, the self-correcting feedback kicks in and will stabilize the money supply.develop
- Therefore, independent of demand, the money relation is controlled by the rate of change in necessary production factors. Such changes are presumed to be unpredictable, as otherwise they are already incorporated into price. (p. 197)revisit
  - Price is by definition unpredictable.develop
    - Related: 5-1b1a2d Knowledge is by definition unpredictable.develop

Labor and Leisure

Production and Consumption

Pure Bank

Savings Relation

Speculative Consumption

Subjective Inflation Principle

Time Preference Fallacy

There is a theory that lower time preference is better than higher, as it results in greater production and therefore greater wealth. This is a reversal of cause and effect.
The value placed on one good over another is a preference, even his own life.
- Viz., economic theory cannot prove why someone prefers one good over another, because preferences are based on subjective valuations.develop
- I.e., a person might choose to sacrifice his own life for a cause—economic theory cannot assume self-preservation is always the highest preference (relate to Mises).revisit
The reason for a preference is not provable in rational economic theory, with one exception—the effect of wealth on time preference.
- I.e., you can’t prove why A likes X.develop
  - Rational economic theory (e.g., catallactics) is agnostic with ends.develop
- Mises argued how some people spend more as they accumulate more wealth—does this contradict the argument?revisit
  - It doesn’t contradict the argument as long as that person’s savings rate doesn’t drop.develop
Diminishing marginal utility implies that each additional unit of a good accumulated by a person has a lower utility to the person than the previous. This implies that, for a given interest rate, increasing wealth implies an increasing willingness to lend.
- Diminishing marginal utility applies to individual consumptions, whereas network effects describe system-wide value accumulation.develop
  - But aren’t economies of scale challenge the universality of DMU?develop
    - E.g., more knowledge doesn’t hurt.develop
    - E.g., when ownership is crucial—such as monopolistic control and strategic accumulation—DMU doesn’t apply.develop
  - However, to the extent that money is held against future uncertainties (e.g., see Hoppe), and because the more money can only mean reduced uncertainty, Voskuil’s argument holds—if by wealth he means money.develop
The economic rate of interest is merely a reflection of time preference. While anything can affect a person’s time preference, only a change to wealth implies a necessary change.
It would be an error however to assume that higher interest rates increase time preference. It is a similar error to assume that a person will be wealthier if he lowers his time preference. These are both reversals of cause and effect.
- Viz., time preference is only implied in how the wealth is allocated (i.e., invested vs consumed)—it doesn’t cause wealth (viz., to riches).
Time preference is a balance between consumption and production.
- Because both infinite time preference and zero time preference imply no production.
No moral distinction between higher and lower time preference exists.
People doing what they prefer is the moral good, again assuming the moral principle of nonaggression.
A related theory states that people can demonstrate lower time preference by hoarding more bitcoin. An increased level of hoarding at the expense of lending implies higher time preference.
A hoard represents only the liquidity required for consumption.
Any speculation is consumption of the cost of “playing”, supported by its required liquidity.
- Because you forego the interest.
There is a related theory that time preference is expressed by deferred consumption.
Savings is a general term encompassing both a person’s hoard and investment.
Savings is the source of all investment, but only actual investment expresses time preference. A hoard can certainly change in marketable value. But considering a greater hoard an expression of lower time preference is a common colloquial misinterpretation of the economic meaning of the term.
With full hoarding interest rates are infinite, and infinite interest reflects infinite time preference

MONEY (3/8/10)

Collectible Tautology

Debt Loop Fallacy

Ideal Money Fallacy

Inflation Fallacy

As shown in [Inflation Principle], no change in purchasing power is implied by supply increase of a market money. (p. 242)

Money Taxonomy

Regression Fallacy

The theorem contradicts the subjective theory of value upon which it relies. Value is subjective, which implies it can be based on anything, even if objectively that basis appears irrational. (p. 248)

Reserve Definition

A reserve is the capital a person possesses. It is present capital, as opposed to invested capital. (p. 251)
Present capital depreciates and as such represents an ongoing cost to its owner. The ratio of reserved to invested capital is a reflection of the owner’s time preference. (p.251)
While holding a certificate as reserve against certificate debt may appear to contradict the definition of reserve as present capital, it does not. (p. 251)
The distinction of a reserve is that reserved capital is “present”, having a maturity of zero. (p. 252)
- I.e., instantly redeemable (include, but not exclusive to, money—because “redeemability” depends on the situation).develop

Risk Free Return Fallacy

Thin Air Fallacy

Unlendable Money Fallacy

PRICE (4/5/5)

Lunar Fallacy

Production is the source of trade and therefore all economic activity results from investment. (p. 273)
A hoard is defined by its lack of consumption in production. If all people hoarded their capital, there would be nothing to trade and therefore no demand for the money. (pp. 273-274)
- Profit from production requires preceding investment.
A fixed supply market money can only increase in purchasing power due to:
- Economic growth—creating more demand for use of the money in exchange
- Monetization—people transferring demand from another money
  - Viz., bitcoin hoarding works as long as people are transferring from the state fiat money (e.g., the dollar)—i.e., as a secondary medium of exchange (e.g., see Bitstein’s argument).
    - But of course monetization has a limit.
Finally, the theory fails to recognize the [Stability Property] of Bitcoin. (p. 274)
For these reasons the theory is invalid. (p. 274)

Price Estimation

Scarcity Fallacy

Relate this to Ammous’ contention that value comes from time.TODO

If no person demands even a scarce resource, it has no value.
Increasing demand tends to increase production.
Increasing supply tends to decrease production.
These negative feedbacks stabalize availability and correspondingly price.
Bitcoin cannot increase in value only because of absolute scarcity. To the contrary, it necessarily becomes more scarce as it becomes more highly valued.
- It comes down to people’s demand (i.e., value).develop
Bitcoin is unique in the realm of property in that the cost of transferring it inherently increases with demand to do so.
- Viz., bitcoin creates a market of its own transactions—bitcoin transaction cost is more precisely bitcoin transaction demand.develop
Bitcoin is also subject to effective substitution ([Substitution Principle])—unlike the Mona Lisa.
- I think the Mona Lisa is also subject to substitution principle.develop
  - Mises: “However dissimilar they may be”
Non-decreasing demand is not assured.
- As is common with economic fallacies, the error stems in part from considering just one side of the supply-demand relation.
Another cause of the error is a misinterpretation of the behavior of commodity monies.
- Apart from sufficient divisibility, the total number of Bitcoin units is entirely arbitrary and therefore unrelated to its utility.
  - Viz., gold’s portability (i.e., greater value carried per weight) was an accidental result of its rarity, and bitcoin’s portability is not tied to fixed supply due to its digital nature.develop
Scarcity is a function of both supply and demand and therefore cannot be inherent in a money, even with fixed supply.

Stability Property

As shown in [Inflation Principle] the relationship between supply and demand (price) is stable despite supply not being fixed. Competition ensures that market money production is controlled by demand. The feedback of demand decrease resulting from supply increase reduces the production incentive, ensuring stability. (pp. 282-283)
As a market money, Bitcoin supply increase has no effect on price. Yet because its supply rate is fixed its stability is instead based on changes to demand. Unlike commodity money, the cost of producing Bitcoin rises and falls based on demand for it. Given that price is the relationship between supply and demand, this has the same effect. (p. 283)
Monopoly money supply is increased arbitrarily (or taxed as demurrage) by the sovereign due to the financial reward of seigniorage. (p. 283)
- The resulting sovereign profit (tax) is the reward of seigniorage and the reason for monopoly money. (p. 283)
  - See [Reservation Principle]
- The supply increase caused by seigniorage is mitigated only by political unrest as people resist the consequential value decrease. This unrest initially manifests as capital flight, which is countered by foreign exchange controls. (pp. 283-284)
As a fixed supply money, late Bitcoin remains stable. (p. 284)
- As fees necessarily rise with demand the utility threshold ([Utility Threshold Property]) eliminates demand for transaction of value below the threshold. More generally, the fee level rises to the point where monetary substitutes ([Substitution Principle]) are more cost-effective for a given value transaction. (p. 284)
- Stability therefore results from limiting demand directly, in contrast to relying on an increase in supply to do so. (p. 284)
- Stability implies that price is bounded, yet it can rise with increased effective transaction carrying capacity (e.g., via layering or block size increase—see [Scalability Principle]) of the coin, and with increased utility relative to substitutes. (p. 284)revisit
  - Refer to Allen Farrington’s bitcoin’s killer-app article for increased utility relative to substitutes.revisit
  - The increased effective transaction carrying capacity itself also contributes to the increased utility of the coin as well.develop

Stock to Flow Fallacy

There is a theory that money with a higher inherent stock-to-flow ratio will suffer less proportional monetary inflation than a money with a lower ratio. (p. 285)
But production of anything occurs when the anticipated price makes production profitable. More people digging for gold increases its flow. (p. 285)
In other words, flow is a function of demand. An anticipated loss results in no production whatsoever. This lack of any flow is not inherent in the substance but a consequence of lack of demand. Given that both supply and demand determine flow, the theory is invalid. (p. 285)
- E.g., the demonetization of gold.
It does not imply anything about future monetary inflation. It can be used to analyze historical relations, and to calculate future stock based on assumed future flow, but it cannot be used to predict future monetary inflation. (p. 288)

SCALABILITY (2/3/4)

Auditability Fallacy

Solvency of a Bitcoin custodian cannot be audited. (p. 292)
A custodian is a person with discretion both in the release of an asset and issuance of securities against it. If both release of the asset and the issuance of securities against it are controlled by consensus rules, then the relationship is not actually custodial. (p. 292)
This is the distinction between a reserve ([Reservation Principle]) and a layer. A layer is protocol-enforced (non-custodial) and therefore has nothing to audit. (p. 292)
A solvency audit requires simultaneous (atomic) proof of both the full amount of the asset held by a custodian and the securities issued against it. (p. 292)
In the case of state banking ([Reserve Currency Fallacy]) it is insufficient to detect the deviation. Historically it has not been difficult to detect such deviations. The difficulty arises in stopping them. (p. 292)
- E.g., the suspension of the gold standard (see Ammous).

Scalability Principle

Substitution Principle

As shown in [Stability Property], Bitcoin integrates transfer fees which necessarily rise with use. This unique characteristic creates downward price pressure by reducing demand. But this rising cost also makes substitutes viable, creating downward price pressure by effectively increasing supply. (p. 293)
- Substitution principle is already at play for bitcoin with the existence of dollar (and other coins).develop
  - “However dissimilar they may be” – Ludwig von Mises develop

Utility Threshold Property

Relate with A Cypherpunk’s Manifesto—it is not technology, but people, that secure the privacy.

Personal notes from various sources, primarily Podcast

Crypto per se doesn’t secure anything—to assume otherwise is to assume unused guns as good as wielded ones.
PayPal suck because of regulation. Bitcoin circumvents the issue totally.
Anybody can fork.
Decentralization is not sufficient for security. McDonald is decentralized but taxed.
Security is people hiding.
Attack means theft.
Censorship is not an attack.
People not wanting to be censored will pay the fees (fee differentials).
Technology is not security. People defending the system is the security.
Mainstream narrative says technology secures bitcoin.
Rothbard was hired to update Mises.
Munger came up with subjective value theory.
In trading, one is both supplier and demander. Supply is something you do. Supply is not a quantity of something. What’s sold is a product.
Bitcoin “supply” is fixed but not bitcoin supply (people exchanging bitcoin for other goods).
Supply and demand are just two people’s desires meeting.
Positive time preference is assumed. It cannot be derived because otherwise it would contradict subjective value theory.
Interest cannot be explained without positive time preference.
Time preference is the driver of all production.
Hoarding doesn’t drive production. I think it does, although indirectly.develop
- It wouldn’t, if there is only one money.
  - But it can, if the hoarded money is secondary medium of exchange—but the relation is not necessary.
    - For the economy revolving around that second medium of exchange, the hoarding means less production in that economy.
    - It appears “productive” as long as there is monetization process going on from the primary economy to the secondary economy—but it contributes neither.
Things get made that people want and that’s profit.
“If it’s not yielding or producing, it’s not an investment. It’s speculation. It’s not driven by time preference.” Challenge this.develop
When you lend your gold, with 10% ARR, in 7.5 year you will double your gold. While just hoarding it gets you nothing extra.develop
Time preference is what determines interest rate.
“Every one has different time preference and they all compete to get as much as they can for their time, so they can produce and just pay as little.”
It’s supply and demand, but it’s not based on the quantity of money (again, supply is not a quantity, but demand, and that demand is time preference).develop
Hoarding is not low time preference activity, but high time preference activity.
Zero time preference means you won’t get it back. Infinite time preference means you won’t lend.
Hoarding doesn’t affect interest rate. If anything, it will raise interest rate. Hoarding is high time preference activity. It appears as if low time preference when the price of hoarded asset increases while hoarded.develop
Lunar fallacy.
Bitcoin is not about number-go-up.
The world is not going to pay you perpetually for not doing nothing.develop
Hoarding <> producing | trading.
Pump and dump.
And money’s value is in the exchange with other goods. It doesn’t have use in and of itself.develop
Monetization of new money cannot go on forever.
Bitcoin has the unique property of costing more to use as more people use it (dynamic stability that doesn’t use supply increase).
Supply and demand are both demands.
“Credit scales money to a limit - the limit established by time preference.”
Substitution principle is already at play for bitcoin with the existence of dollar (and other coins).
You cannot prove that something will store value - because value is subjective.
It’s not monetary inflation per se (increased quantity of money) but monetary inflation done at the cost lower than the market rate (monopoly protection) which is the culprit.
Technology only provide opportunities to security.
White market doesn’t have security against tax (e.g., demurrage with KYC can tax bitcoin under the Bitcoin Standard).
Labor theory of value (Marx) = energy theory of value (“Bitcoin Austrians”). Relate to [production multiple] as presented by Checkmate.
The diamond-water paradox. Relate to [be useful] note.
- Related: 7-1a2a3 Win at the corner then come back (傾く・バロック)
Supply is not fixed, and demand is not constant.
Yogi Berra.
“There is only me. I have monopoly on my labor.” — Rothbard
“Without credit there will be no production.”develop
We can’t prove time preference.
The value proposition of bitcoin is as money—as money that can avoid taxation.
Value is subjective—you can’t store what’s in people’s minds.develop
Transaction fees reveal the Lunar Fallacy.develop
More demands lead to more supply—except bitcoin (because transaction fees increase offset demand).
Rational economics applied to bitcoin = cryptoeconomics.
Making consensus changes because your implementation is limited is real issue.
Rothbard equivocates free banking and state banking.
Anything done voluntarily is good, if you adhere to the non-aggression principle.
Everything state does is a form of taxation.
Credit expansion is a natural consequence of credit—if not there will no products.
Credit includes equity investment (not just loan).
Bank reserves should be called bank hoard. Their job is to estimate the future cash flows. When in trouble, they just borrow or go out of business just like other businesses.
It’s not that every company will assume the role of banks (full-reserve), but rather banks become a company whose commodity happens to be money and credit (fractional-reserve).develop
Lending is necessary for money to flow.
All capital is always hoarded (post credit iterations). But invested. This is credit expansion. The amount of expansion is a direct consequence of interest rate, which is determined by time preference.
Mutual fund (money market) is an investment and not risk-free.
Ideas are free. Only limit is capital. Without capital there will be no product made.
Credit expansion and interest are inherent. Tautological.
Credit expansion is a consequence of lending. Credit expansion is inherent in the production cycle.
Investing in banks (not equity but deposit) is not really like selling call option, but it’s similar in that you get limited upside.
Reservation principle: central banks hoard reserve asset so that people will have less access to them.
Popularity doesn’t win (Hearn error).
Jurisdictional arbitrage won’t work (troops will be sent).
It will work until someone serious really starts to care.
Banks are not warehouses.
Every banks are monopolized now.
Crypto exchanges are crypto banks.
Tether is white market money.
Bitcoin and using bitcoin is not the same. Bitcoin can survive without exchanges.
Most people are statist.
Promissory notes are different from the lent capital itself (e.g., gold and bitcoin) and inherent with risk (in a free market).
Saving in deposit account is investment and a form of saving.
If you eliminate fractional reserve you eliminate money market fund (MMF) and that eliminates investing.
Reserve ratio should be freely dictated by the market. But if so we won’t need bitcoin.develop
Free banking will be equivalent to investment funds (reserve ratios would be simply the leverage ratio?).develop
State banking doesn’t have maturity mismatch risk because they have the lender of last resort.
Free banking just have to estimate its cash flows.
Black market lending has all the associated black market characteristics—but bitcoin doesn’t care about that.
Free banking won’t likely exist. If it does, we don’t need bitcoin.
“Only in the rejection of a trade you can enforce your rules.”
Being distributed is the security.
Miner is selling confirmation to merchants.
Work is about off chain.
Anonymity, externality, fees = security.
Money has to be used, and will find its way. Issuance is not that important.
Satoshi didn’t see the fee premiums as the source of censorship. It was charity by community instead.
Fee premiums doesn’t guarantee successful censorship resistance.
Possibility <> guarantee (provability)
Time preference is a “given” in economics, it’s neither derived nor judged. Lower cannot always be better. This should also be obvious from the use of the word “preference”. The ideal is what is preferred. link

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