Eric Voskuil

Read 28 sub-categories (out of 98—from eight parts)

SECURITY MODEL (14/22)

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

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

Risk Sharing Principle

Social Network Principle

Threat Level Paradox

Value Proposition

STATISM (3/5)

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 (2/23)

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 (5/17)

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 (5/12)

Credit Expansion Fallacy

Depreciation Principle

Expression Principle

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

MONEY (3/10)

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)

Lunar Fallacy

Price Estimation

Scarcity Fallacy

Stability Property

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 (2/4)

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

Utility Threshold Property