Tim Swanson is the director of research at Post Oak Labs, a U. Imagine a parallel universe in which the U. 6 million hashfast bitcoin output per annum.
That due to a hard-coded economic planning computer program, every four years the income its inhabitants collectively generated divided in half. That is to say, irrespective of how productive and skilled the labor force became or how large the labor force grew, the productive output in the U. How many people would volunteer to live and work in that “Upside Down” world? This situation effectively mirrors the static, internal economy of bitcoin and many other cryptocurrencies. For instance, with proof-of-work networks like bitcoin, the marginal productivity of labor is zero. 5 bitcoins roughly every 10 minutes.
Irrespective of external economic conditions, of demand, the Bitcoinland economy will generate about 657,000 bitcoins per year in its third epoch. The purposefully planned sameness is often extolled as a “feature not a bug,” and many cryptocurrency enthusiasts like to daydream for when regulators and financial institutions of our own world disappear, eaten up by grey goo nanites funded by bitcoins. But before bitcoiners can reach their Upside Down nirvana state, they need to resolve the underlying omnipresent economic calculation challenge facing their security system and labor force. There are many reasons for this, including chronic volatility. But for this article, let’s put aside the typical discussion of payments and merchants and instead focus on labor. From the perspective of the network: developers, maintainers, administrators, enthusiasts, Twitter sock puppets, meme artisans, flame war veterans, self-appointed thought leaders, pumpers, hat wearers, etc. Miners do this because the unit of account for fiat currency is typically stable and liquid, such that they can pay wages to their employees, pay rent, electrical costs, property taxes, etc.
There are exceptions to stability, such as planned economies of Venezuela and Zimbabwe which have suffered from years of political chaos, but in general, most developed countries and even developing countries have relatively stable domestic currencies relative to Bitcoinland. Bob projects future revenue based on a unit of account that is stable, in this case, currency from foreign capital markets. New Zealand would be left alone because the Politburo needed a functioning market so that the Soviets could know what the market prices were for goods and services. In this case, despite their own defects and problems, the U.
Japan, South Korea, China and several other countries effectively stand in for “New Zealand,” such that the national currencies and prices in these countries reflect dynamic economic conditions that bitcoin miners can use as reference rates in their capital consumption projections. Final remarks In 2018, just as the past nine years, miners will still depend on foreign financial markets for both stable pricing and liquidity. If the existing traditional financial markets became chaotic and unstable, miners would be unable to rationally plan and allocate for future investments. 13 billion in capital consumed by miners in their rent-seeking race. And that is just one proof-of-work coin. Ironically, despite all the bluster, because cryptocurrency ecosystems lack a circular flow of income, they will still be dependent on the very financial system they vilify for daily support and stability.
And while there have been many “stablecoin” projects announced and launched over the past year, nearly all of them are not only dependent on commercial bank accounts, but also on the economic stability of a specific economic region they aim to serve. Guess what set of entities provides that type of relative stability? Ideological enthusiasts will likely resort to whataboutisms and respond by bitcoinsplaining: how dirty filthy statists will censor your virtuous darknet market transactions and that maintaining proof-of-work networks is worth any cost to the environment! But again, that is for a snarky article on a different day.