Quote from: CoinCube on January 19, 2017, 11:16:06 PM

Quote from: sidhujag on January 19, 2017, 06:38:46 PM

Quote from: CoinCube on January 19, 2017, 06:24:47 PM

What interest me is the role bitcoin plays in improving the signalling mechanism of money. sidhujag has referred to a near perfect money from the framework of Nash's asymptotically ideal money.

At first glance bitcoin does not appear to be ideal money at all. It's utterly fixed quantity of 21 million creates a permanent incentive against growth. In a world with bitcoin as currency people would under-invest as it becomes very profitable to just to hold money. Bitcoin as money introduces a vector opposing growth.

Bitcoin, however, does not exist in a vacuum. It coexists alongside a usury based fiat system. This financed based system is built upon very different foundations. Usury introduces a vector for eternal exponential growth. Eternal exponential growth is impossible in a finite world so under our current system we must progressively lie to ourselves to maintain the illusion of exponential growth.

In mathematics if one wishes to zero out a vector field you introduce a vector pointing in the opposite direction. We may be able to achieve asymptotically ideal money not via any single currency breakthrough but by the existence of competing currencies founded upon differing fundamental assumptions different vectors.

If we allow free flow of capital between these currencies capital can flow between them matching overall growth signaling with underlying reality. Perhaps ideal money will not be a single currency but the result of a dynamic competition between them.

I've thought a bit about this. If bitcoin was used as the default currency you can pay taxes in then banks would refuse to lend.. ie people with bitcoin would then become banks. You wouldn't want to loan your coins out? There will always be peaks and troughs in the market, so maybe during a downturn people loan coins for cheap (lower interest rates) while on uptrends the demand for loans picks up but at higher interest rates based on that demand. In general people want to HODL as they expect higher prices but there will still be lending available because people want to assure income through interest rates as lenders and borrowers want to always make more coin. Lenders know they will get their coins back so they will always lend with interest unless the borrower defaults (which is risk placed in the calculation of the interest rate to the borrower).

(This is my current thinking feedback is welcome)

Imagine for a moment coexisting large and liquid bitcoin and fiat markets in equilibrium. Given the option borrowers will prefer loans is a currency they have a reasonable expectation of repaying.

Along comes a major technological innovation that promises dramatic innovation and profits. Innovators seeking to capture this new market will need capital. Some will invest their fiat others will take out fiat loans and some will sell bitcoin. Overall the demand for bitcoin will decline relative to the demand for fiat. The signal transmitted through the cumulative system of monetary transmission (fiat and bitcoin) will be one of increased growth. Capital shifting from bitcoin to fiat increases the overall growth vector matching capital appropriately to opportunity.

Now imagine the opposite scenario of limited growth exhaustion of opportunities and economic consolidation. Fiat requires perpetual debasement which will continue with or without growth so individuals will sell productive assets who's future prospects require growth, take out fiat debts to by bitcoin (anticipating debasement without growth), and exchange fiat for bitcoin. The signal transmitted through the cumulative system of monetary transmission (fiat and bitcoin) will be one of reduced growth. Bitcoin is ultimately a zero growth vector. Capital shifts away from fiat decreasing the intensity of the growth vector.

In this way individual actors shifting back and forth between liquid markets can alter the behavioral vector introduced by money so that it matches underlying reality.

What is the difference between investing with bitcoin vs investing with fiat? One is closer to ideal money than the other and thus will win. They may work in harmony up to a tipping point where the preferred market instrument will take over due to higher transfer utility. You seem stuck in thinking that people cannot invest or will not invest with bitcoins. If the breakthrough is significant people will want bigger gains than what they would have been getting with btc.. if not then the breakthrough isn't big enough to justify large capital investments. Just as there is demand to hold coins over investing there is also likewise demand to lend bitcoins to high quality borrowers.