Quote from: iamnotback on February 28, 2017, 11:33:50 AM

:-*1. PoW does not destroy (aka "burn") the economic value. Most of it ends up as cash flow to the utility companies, which means more demand for subsidized large infrastructure power projects, given that utilities are price-controlled and regulated (which means the political corruption of privatizing the profits and charging the costs to the public). There is some portion of the value traipsing into to the environment as "waste" heat (i.e. disordered), but there is friction in any system that interfaces with the tangible world, thus it isn't a unique feature of PoW.

You are right that the energy markets are not totally free, but in reality, there IS commodity destruction. It is not as complete as in the case of a totally free and competitive liquid energy and ASIC market, but there is more waste than if you had to print dollar bills.

The real problem of PoW doesn't come from the fact that there are still large margins taken on the commodities that need to be destroyed, but rather that the coin value at the moment of its PoW creation only has a fractional value of its later value. The value increase of the coin over time is also a form of seigniorage: people get value for just holding coins. At what point that is seigniorage, and at what point that is "investment", can be discussed. I consider that it is not an investment as such, because there's no economic value produced by the investment - well, there is the ultra-small economic value produced by the utility of the crypto currency, which is essentially zilch: almost no consumer good, in the end, has seen the daylight that wouldn't have seen the daylight if crypto currencies didn't exist, and consumer goods/services are the bottom line of economic value of course.

Quote

Thus there is nothing wrong with the creator obtaining some exponentially diminishing seigniorage. And PoW's great contribution is in the objectively, competitive distribution which runs on auto-pilot and doesn't require ongoing seigniorage (except as pointed out above the seniorage of the government utilities it furthers and also the fact that economies-of-scale centralize it and create an ongoing seigniorage, which is really, really bad and why Bitcoin is in a scalepocalypse political clusterfuck as the power vacuum must be filled). But PoW doesn't actually destroy the value transferred in the process.

There are two remarks on this. First of all, holding a seigniorage-obtained fraction of a collectible which grows in market cap over time, gives you a proportional growth in seigniorage, without doing anything. If you possess 5% of bitcoin when its market cap is 1 million dollars because of seigniorage, and bitcoin goes to 1000 billion, your seigniorage has grown proportionally. So you DO gain continuous seigniorage by just holding the coins. That is even the case if you wasted 50 000 dollars to obtain them, that is, if you destroyed entirely the initial seigniorage when you created them. This is the problem with a "sound money" collectible as a monetary asset. You could formulate it that its seigniorage properties are not invariant over time. This is a problem in my opinion.

The second is that value that is transferred (the goal of a currency) shouldn't, of course, be destroyed ! It is coins created that should have their value destroyed, apart from a small competitive margin. The economic value of a crypto currency is ultimately only worth what it allowed to produce in utility for the end consumer, and that is not much. This economic value can be distributed over the people that made this happen, took the risk and had the vision, like with any investment. But the problem with a monetary asset is that it doesn't take its *added economic value* as market cap, but *the whole traded value*. There is no "economic fairness" in this.

If I have, say, a big machine that can labour land, and you want to labour your land, my machine has economic value to you, because you can grow more food on your land with my machine. Let us say that the gain in food production ends up being 1000 if you use my machine. You using my machine is hence worth 1000. But we have to get my machine to your place. If I have to hire 20 people to carry it to your place, that would cost us 200, which means that only 800 remains. Now, if Joe has a truck, and he can transport the machine to your place. He needs to spend a value of 50 on gas, maintenance and so on for his truck. You can say that in the end, the economic value of him using the truck is 150, because without the truck, we would end up obtaining 800, and with his truck, we end up obtaining 950 of value.

However, his truck did transport my machine, which was worth 1000 in total. But the truck voyage itself was only worth 150.

With a monetary asset, however, the existence of the monetary asset, which is the "truck for value", brings in some economic value (like the truck did, about 150), but takes on, as a market cap, the FULL value of what is transported.

The confusion with a monetary asset is between the value it *transports* and the value *creation* of the system itself (the competitive advantage the monetary system brings over other ways of transporting value). My claim is that, at the moment, the competitive advantage of crypto over, say, fiat, in pure end-consumer value creation is minuscule. This minuscule value is what could be fairly distributed to the "investors" in crypto - like they would if they had invested in any other stock. But with crypto (like with any other monetary asset), the value of the asset itself is confused with the value it transports. It is not because I bought something for 10 000 dollars with bitcoin, that the bitcoin system created me an economic value of 10 000 dollars, it only transported it (like the truck) ; as such, it did bring me some small value because otherwise I would have done it with fiat, but this is a very small amount.

However, the holder of "seigniorage bitcoins" takes the full value that is transported as reward, and not just the value creation by the bitcoin monetary system. This unfair economic advantage makes that one hugely overinvests in this system. In other words, the seigniorage-by-holding-coins is a huge market failure, that directs tons and tons of resources towards something that has very little economic consumer value.