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Bitcoin Cybereconomy

Did John Nash Help Invent Bitcoin?

Hal Finney, one of the early developers of the bitcoin protocol, is often touted as one of the creators of the technology due to the optimizations to elliptic curve cryptography he made alongside Satoshi Nakamoto in the earliest days of its existence. As the first transaction recipient of bitcoin, Finney was integral to bitcoin’s operational takeoff, and can justly be described as one of its most crucial creators. In much the same way that Hal Finney is credited with being a core contributor to the implementation of bitcoin, could John Nash, someone who had been at the forefront of mathematical and economic thought into the prospect of ‘ideal money‘, be justly attributed credit for the formation of the electronic cash system of cryptocurrency?

The special commodity or medium that we call money has a long and interesting history. And since we are so dependent on our use of it and so much controlled and motivated by the wish to have more of it or not to lose what we have we may become irrational in thinking about it and fail to be able to reason about it like a bout of technology, such as a radio, to be used more or less efficiently.

– John Nash

Ideal Money

Nash described the concept of ideal money as having the function of a standard of measurement and, thus, it should become comparable to the watt, the hour or a degree of temperature.

He asserted an ideal form of money should provide a viable solution to the Triffin Dilemma – it should serve both short-term domestic and international long-term objectives where central banking money has utterly failed (the average lifespan of a fiat currency is 27 years).

Bitcoin Money Supply
The inflation rate of bitcoin asymptotically approaches zero as we inch closer to the currency limit of 21 million units.

Disinflationary Money Supply

Asymptotically ideal money focuses on the fluctuations and long-term perceived value of money, where the ideal inflation rate is as close to zero without being negative (deflation). Currently this accurately describes the economic nature of bitcoin, as it is a disinflationary money supply by design – that is, it is decreasing in its inflationary nature by halving the block reward at predetermined intervals. The inflation rate of bitcoin asymptotically approaches zero as we inch closer to the currency limit of 21 million units.

Nash described this ideal of money as something which could solve the Triffin Dilemma and provide a global savings outlet for people who would otherwise be subject to ‘bad money’, or money expected to lose value over time under conditions of inflation.

Nash described a nonpolitical value standard for comparisons of value, asserting that an industrial consumption price index could be “appropriately readjusted depending on how patterns of international trade would actually evolve”. Moreover, Nash described how actors that were in control of this standard could corrupt this continuity, yet the probability of damages through corruption would be as small as politicians who alter the measurements of meters and kilometers.

Bitcoin Consumption Index

Within the bitcoin network, the mining difficulty index, which can be viewed as a type of consumption index, is intelligently adjusted based on a regulatory algorithm which assigns the difficulty at a rate where new blocks are mined every 10 minutes, on average. Further, authorities of the bitcoin network (51% mining pools) could corrupt the standard of non-double spending, yet doing so would be an attempt to alter the calculation of transactions while not honoring their own incentive to remain an honest mining participant. The bitcoin whitepaper itself describes how such an authority would choose to ensure the integrity of this transaction standard as doing otherwise would devalue their own authority position in the mining network.

The nonpolitical industrial consumption price index Nash described in his 2002 paper is represented by the bitcoin network’s intelligent design towards regulating mining consumption power and readjusting the difficulty and block rewards accordingly.

Given that the bitcoin network is inherently regulated by an algorithm which adjusts the consumption index to an average of 10 minutes, could it be argued that the standard of measurement is time itself?

Is Bitcoin Nash’s Ideal Money?

Nash’s work on ideal money is represented in the most fundamental aspects of bitcoin’s economic nature. His insights into a form of money which can be used as a true measuring tool and one which solves the Triffin Dilemma by serving as a viable domestic and international money supply, have made bitcoin into what it is today – a practical opportunity to achieve an international standard of ideal money.

Is bitcoin the closest thing we have thus far seen to the concept of ideal money? John Nash’s work into the field did indeed make its way into the invention of bitcoin. Although he was very likely never behind the guise of Satoshi Nakamoto, his work lives on in the monetary policies built into the bitcoin protocol.

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Bitcoin Cybereconomy

Bitcoin Is Backed by Time Itself

One of the most commonly heard criticisms of bitcoin is that it is not backed by anything. What investors and enthusiasts must understand, is that bitcoin is not only a financial asset with considerable valuable, but it is regulated by a universal constant unlike any man-made money system which has come before it: time itself.

Algorithmic Regulation

If the USD is backed by the authority of its government and the largest force of military might on the planet – then what is backing bitcoin? Even if programmable, digital money brings intrinsically valuable capabilities, how can we have faith in it if there is no core party which oversees its acceptance and adoption?

This regulatory construct of bitcoin allows us to plot the supply schedule in a manner which is highly predictable while being uncheatable through manipulation found in traditional monetary policies. At the very root of what makes the bitcoin network tick, is a regulatory algorithm which determines that new blocks of bitcoin will be mined on average every 10 minutes. These ‘uncheatable’ maths which are intelligently constructed by system design, ensure that nothing can alter the predetermined issuance rate, nor the block reward halving rate, of bitcoin.

Every 10 minutes, more bitcoin become available at a disinflationary rate. That mathematical guarantee formulated by a crude form of artificial intelligence is the backing of a system which boasts remarkable intrinsic value.

Friedman’s k-percent Rule

American economist, statistician and writer Milton Friedman once posed the idea of replacing central banking institutions with a computer capable of mechanically managing the supply of money. He proposed a fixed monetary rule, called Friedman’s k-percent rule, where the money supply would be calculated by known macroeconomic factors, targeting a specific level of inflation. Under this rule, there would be no leeway for the central reserve bank as money supply increases could be determined “by a computer” and the market could anticipate all monetary policy decisions.

Will we ever see Friedman’s computerized banking institution put into action?

Considering the mining network of cryptocurrencies are the closest thing to an authority, and mining will only get more specialized and thus centralized in the future, we may well already have arrived. Friedman predicted the rise of a computer capable of automatically adjusting the inflation rate of money, and this is precisely what we see in the case of bitcoin.

As a regulatory algorithm intelligently adjusts the mining difficulty to make the issuance of blocks more or less difficult, bitcoin well resembles a working prototype of Friedman’s k-percent rule.

Bitcoin boasts the economic backing of a force magnitudes more intelligent and pervasive than the promise of men & military might: an uncheatable, highly predictable, chronologically enforced supply schedule.

The computerized function of the bitcoin system boasts remarkable intrinsic value. The cumulative value of this network will continue to grow as more users join the fold and payment in bitcoin becomes more accessible for every participant.

No money system we have seen to date can claim it is regulated chronologically. Bitcoin is backed by time itself.