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BITCOIN In Light Of
Passive BIBO Currency Control Theory
By Marc Gauvin (c) 08/11/2013
Reproduction expressly granted provided attribution and original link are given.
Passive BIBO Currency is concerned with providing a stable measure of the value attributed to goods and services being transacted. Each transaction generates its own units that are resolved against existing balances such that when all providers of goods and services have redeemed all equivalent value in future transactions of goods and services, then all balances return to zero. By applying formal stability and control theory, BIBO Currency resolves the lack of logical congruency in defining money as both an object of value that varies according to its relative scarcity as well as a unit of measure of that same value. This is summarised in the Stable Currency Unit Theorem.
Thus logically, units can only serve the function of recording the value of goods and services in transactions but do not have value in and of themselves and therefore are not negotiable instruments that can be "supplied" lent, borrowed etc., in this way only goods and services can be the object of measures of value within transactions but never the units themselves.
BITCOIN is focussed on providing a decentralised supply of an artificial commodity (BITCOINs) that mimics precious metals as mediums of exchange but with the difference that ostensibly, mining cannot be monopolised although the system does establish a predetermined limit of maximum 21 million units that will ever be mined, each of which is susceptible to a maxixum subdivision of up to 108 called a "satoshi" after BITCOINS mysterious founder's pseudonym Satoshi Nakamoto. Thus and if we take the satoshi as the base unit, the limit is 2.1 x 1015 units or 2.1 quadrillion. BITCOIN unquestionably assumes the current inherited notion of money as a scarce object of value that simultaneously acts as a store of value, medium of exchange and measure of value. BITCOIN enthusiasts claim that it is a cure to current system ills due to monopoly of the creation of money by central banks and government intervention in what should otherwise be an anonymous, unregulated free market of currency creation and commerce.
It is worth pointing out that BITCOIN mining is not for everyone due to the competitive nature of production and increase in infrastructure costs per coin as the number of miners increases and the number of BITCOINs approaches the system limit. This would seem to indicate that BITCOIN mining will never be carried out by a majority of users, but rather will tend to gravitate to more economically powerful contenders with vast patrimonies in the form of real wealth that have the capacity to combine mining with market buying and selling.
With regards to Passive BIBO theory, while both propose greater freedom and autonomy of money creation, access and use, BITCOIN does not resolve the ontological inconsistency of confusing a measure of value with a scarce commodity of variable value but rather embraces it. In this regard and due to BITCOIN being a scarce resource/commodity like artifice and in spite of its intended deregulation, anonymity and its theoretical "decentralised" topology, BITCOIN does not satisfy the requirements of a Passive BIBO Currency see ASTA3 Requirements, the aim of which being to provide a fully rational and integrally logical currency standard that satisfies the requirements for a stable measure of divisions of value (liquidity) over time but without the distraction and confusion of having to negotiate access to the unit itself.
Thus, it would seem that the problem of confusing the function of measure with that of a commodity of variable value, would threaten to undermine the initially deregulated and anonymous nature of a BITCOIN market, particularly as this currency becomes subject to commercial contracts as a means of protection in BITCOIN based commerce. Also, in terms of public interest and as BITCOIN becomes a de facto standard propelled by binding commercial contracts, the requirement to counter abuses of hoarding, subsequent market value manipulation and lending of BITCOIN, would require some level of auditing of BITCOIN transactions. The only safeguards to abuse inherently anticipated in the BITCOIN design seem to be limited to firstly the fact that it is inherently deflationary and secondly that ostensibly mining cannot be monopolised, both of which don't seem to be immune to being undermined by BITCOIN becoming mainstream and incorporated as a standard currency used in commercial contracts not to mention issues of public interest. Finally, it is important to note that the value of BITCOIN to date is primarily in terms of conventional currency and not in terms of the value of goods and services as would become the case later on.
Thus the afore mentioned safeguards would seem to prove insufficient particularly in a deflationary setting and where BITCOIN no longer is valued against conventional currency but rather is the predominant mechanism of liquidity for negotiating transactions of goods and services. In this regard, it is worth considering the following particularly for when BITCOIN mining approaches its fixed limit and given that by definition it is scarce:
- The change in demand and supply over time when commercial contracts in BITCOIN become more common place.
- Given the programmed increase in cost and risks of BITCOIN as the creation limit is approached and depending on the competition for solving each new block, it is clear that the majority of users will not be miners. What prevents miners from pooling together to reduce risk and coalescing into an influential sector?
- Assuming its deflationary nature persists, what prevents corruption via BITCOIN?
- What prevents hoarding BITCOIN?
- What prevents the collateral based lending of BITCOIN at interest in BITCOIN?
- Assuming that businesses take out loans to finance production in a deflationary market how do producers compete in price with more recent producers?
- Once collateral based lending of BITCOIN to finance commercial production and demand outstrips supply, what prevents BITCOIN from inflating?
It is clear that nothing in the objective design precludes any of the above from occurring. Furthermore, the moment demand for BITCOIN becomes a function of formal and legal financial commitments within the production cycle of goods and services, stability of prices in BITCOIN becomes a business requirement leading to the very same issues that have led historically to intervening and regulating both precious metal as well as fiat based currencies. These are the underlying issues that are addressed by Passive BIBO Currency design as outlined in this document and where it becomes evident how it is impossible to correct the logical error of confusing the measure of value with that of a store of value in the form of a commodity of variable value as a function of relative scarcity, once such an error is part of the design.
BITCOIN enthusiasts will say that such price stability is not its function but rather the objective is the decentralised anonymous access to BITCOIN as a store of value in a market that is free of government intervention. However, this would seem illusory because it confuses the measure of speculative value with the value and goodness of real products and services. Historically, whenever these two types of value are confused, social problems inevitably arise as reward for non productive income, in terms of real goods and services, is heightened. Whereas a currency that can never be a commodity itself, only allows for value to compete in terms of the quality of real goods and services the value of which it only measures. At this point it is important to emphasise that the mathematics of stability, control and measure can only support the latter and demonstrably exposes money as both a commodity of variable value and measure of that same value as a logical absurdity.
For a more detailed and technically accessible understanding of how to deprogram our minds from the current false money paradigm, please read "The Money PSYOP" and pass on the link.