In that case everythings price measured in USD will be magnitudes higher, car price will be 1 million dollar, house will be 10 million dollar, bitcoin will be 1 million dollar, etc...

But I don't think that will happen any time soon. Most of the people are very stubborn on belief of their own national currency, that change will not come from average household, but from the top, like large investors dumping USD for other currncy/assets, but they might do it outside of US to minimize the domestic impact

If Greek leaders would point out the nature of fiat money scam, that will trigger a world wide level of events, however I don't think they have enough knowledge about money creation (judging from their speak, they still think fiat money is something hard earned and valuable)

In the end, the whole block of transactions must be present on the blockchain at the most distant end of the network in 3 minutes to allow newly discovered blocks to be added upon it. Ideally, you need to transmit 20MB data in 1-2 minutes. Maybe it is possible to use multi-threaded P2P downloading to accelerate the data transfer

That's the plan, but now every major institution knows this and they will not loan out that money to business (due to already severe over production of almost everything), those money just went to other area like commodities and bonds

Under current system, this will only happen when banks have purchased everything in the world with their endless money printing. But the sad thing is, even the system is failed by then, banks would have already acquired the ownership of almost everything in the world, there is no way to change that back

I think that will not be a problem, the asset side keeps growing and the liability side (money) is actually hold by the large commercial banks, as long as these banks have a mutual agreement with central bank to not let their huge stash of cash flow out, there will be no inflation

What is this "land belongs to people of that state collectively" you are talking about, is it a communist country?  

As I know, some western state governments are selling their property little by little to those bankers, due to that they can not afford to repay the loan

As usual, banks will never tell you what they are actually doing, but you can get the concept step by step

From a higher level of abstraction, MBS is some kind of asset that has value, it does not matter it is gold or land or debt, they are all something with value. Issuing money backed by valuable asset is the spirit of Real Bill's Doctrine, MBS is the Real Bill here

From the name, MBS is a kind of security: A tradable financial asset, similar to bond. Bond is debt, backed by the promise of repay in future. So MBS is also backed by the promise of repay in future, but with one exception: It has a mortgaged house behind it. If the borrower defaults, bond becomes worthless, but when that mortgage defaults, MBS owner would take over the property as a compensation

So MBS is not only debt, but also a debt backed by the land. During a financial crisis this debt have a high rate of default (foreclosure), as a result the property will belong to MBS owner

FED purchased huge amount of MBS, because when house price crashed, many of these securities get defaulted and leave the banks with house. If banks sell these house on open market, they will crash the house price further and trigger a total melt-down of everything

So FED was actually buying these houses to prevent a house sell-off, but FED greatly benefited from this move and now all those houses are listed on the asset side of FED's balance sheet

Nice posts, keep it going!

The negative interest on bonds proved that people who have fiat money are desperately buying any asset that they can get their hands on. I have not been able to imagine a possible event to trigger the collapse of fiat money, but I think it is coming from the shaken confidence, and it is getting close

In modern fiat money system, the fiat money holder do not have the right to redeem the land, so banks will keep buying land using this trick and the available land will get less and less, thus the price will rise forever. The land price only drops if there is no new money inflow, but just look at what FED did, they printed 5x more money to buy those lands to support the price of them, actually the best time for them to buy the land is during an economy crisis

And it will not cause inflation if they purchase equal amount of national debt at the same time. A high ratio of debt will cause austerity, which reduce the consumption on daily goods, counter the inflation tendency of money printing

It's amazing that on one hand, they keep buying properties using printed money, on the other hand they keep buying debts using printed money and charge interest. The inflation effect of property purchase is negated by the deflation effect of more debt for the whole nation, how genius  

At least bitcoin miners put real resources in making bitcoin, while fiat money is just a promise

The entire tax base of the nation won't give you anything in return, that promise is not payable, e.g. you can not get your money to FED to exchange the bond that backing them. Only FED will decide when should they sell assets, and it seems that they will never sell assets, only buy

And the government's tax income is not enough to pay back their old debt + interest

John Law's Real Bills Doctrine says that banks can create fiat money backed by his assets

Originally, if a bank have one ounce of gold, then they are able to issue fiat money of corresponding value. The fiat money have the same purchase power as one ounce of gold, since they can redeem the gold at bank anytime

However, John Law went one step further, saying that if the bank have one acre of land, then they can issue fiat money of corresponding value, since they are backed by the value of that land

Adam Smith pointed out, this increased money supply will cause large inflation and will not help economy. However, his view is too academical, since the money creator will not be so foolish to use their new money to buy goods for daily consumption to trigger inflation, they will use those money to buy assets


Consider such a scenario:

The bank would start with a small amount of asset, say one acre land. They issue the money worth of one acre land, then bank can use those money to buy one more acre land. After they get the new land, they could issue money worth one acre land again, and use those money to buy another acre land...

After a while they have bought so much land and now the price of the land has increased, they can issue more money based on higher worth of their lands. They could keep doing this until they bought up most of the land in the country

And since the land price is not showing up in inflation statistics, they can keep buying like this for many years

To make it more aggressive, now they purchase not only land, but also debt, which is in fact future products and services. And purchasing debt is even better than purchasing land, since a high level of debt will put a downward pressure on consumption, so inflation will not be a problem no matter how much land they purchase


What does this mean?

If the money creation is based on the backing of assets, then money creator can acquire almost all assets if he just scale up his operation, without doing any meaningful work or giving anything valuable in return



On the contrary, gold or bitcoin is totally different, you can not issue money based on backing of anything, you must put real valuable resource to get it, this created an equal ground for value creation

The biggest reason that fiat money will fail is because its original ownership is acquired through nothing, no value exchange, no labor, no service, just nothing. Anyone with the ability to exchange nothing for something will eventually get the whole world if he just scale up his operation

Suppose that you are selling goods, and suddenly all your customer have less USD to spend, that impact your sale, what will you do? You will welcome customers with other money like bitcoin, that is what I mean

I just took the numbers on that chart, their paper says 0.08s/KB but the chart shows 0.25s/KB, no big difference

Ideally, you would like to keep the broadcasting time below 1 minute, to make sure the network does not fork into different chains, and to reduce the orphaned blocks. Currently some connection to china is about 20KB/second, means 1MB data will take 1 minute to just reach their network. Of course china have much less nodes than the rest of the world, but they do have large amount of hashing power

For 10MB block, the bandwidth requirement will be 2Mb, which is quite high if you consider the connection over continent. Hopefully before we reach that stage the network bandwidth has been upgraded

Is this dropping in luck comes from more orphaned blocks?

You must be able to broadcast that huge block to most of the nodes in 10 minutes. I don't see the latest research regarding this area, but there is a paper from 2013


http://www.tik.ee.ethz.ch/file/49318d3f56c1d525aabf7fda78b23fc0/P2P2013_041.pdf

Based on this research, it took 0.25 seconds for each KB transaction to reach 90% of network. In another word, a 1MB block will take 256 seconds to broadcast to majority of nodes and that is 4 minutes

When block size reach 10MB, you will have a broadcast time of 40 minutes, means before your block reach the far end of the network, those nodes have already digged out 3 extra blocks thus your block is always orphaned by them. And the whole network will have disagreement about which segment have the longest chain, thus fork into different chains

Gavin's proposal is to let mining pools and farms connect to high speed nodes on internet backbone. That is reasonable, since the propagation time is only meaningful for miners, your transaction will be picked up by the mining nodes closest to you and if those mining nodes have enough bandwidth, they can keep up with the speed. But anyway, how much bandwidth is really needed to broadcast 10MB message in a couple of minutes between hundreds of high speed nodes need to be tested. And this is the risk that someone worried about the centralization of mining nodes: Only those who have ultra high speed internet connection can act as nodes (I'm afraid that chinese farms will be dropped out since their connection to the outside world is extremely slow, they will just fork to their own chain inside mainland china)

I think the real test has not happened yet (maybe never will) If exchange rate stayed below $100 for extended amount of time, profit-seeking mining farms will be squeezed out one by one, daily generated coins will flow back to bitcoin enthusiasts who are willing to pay more than electricity to get the coin (mining for fun)

Currently a block can take 1 minute to propagate to most of the node, if large blocks took more than 10 minutes to broadcast, the whole network will be segmented, or you have to rely on several large bitcoin hubs on ISP's backbone. But if the block size is small and thousands of nodes become the hub for off-chain small transactions, then the system will still be very decentralized, although not distributed

Bitcoin itself does not know the capacity and health of network infrastructure, certain kind of human intervention is necessary, but should be in a very smooth manner

Exactly, there is an ownership shift problem in the current monetary system, it should be the one who own the assets get the ownership of both assets and issued money, but banks took ownership of the assets during the money creation process and this caused the biggest robbery in human history

For example, I'm government and I issue 100 billion dollar based on my asset (bond), I should have the ownership of both 100 billion dollar and the asset. However in today's system, if government issue 100 billion dollar based on their asset, the ownership of those bond will belong to FED, which is not owned by the government. So the banks get the ownership of large amount of assets by simply creating money

Similarly, a house manufacturer can issue 1 million dollar based on his asset (house), he should have the ownership of both 1 million dollar and the house. After he spent 1 million dollar, those dollar might come back to him to redeem the house, but until that, he still own the house. In today's system, bank took his house and give him 1 million dollar, and those 1 million dollar is created by the back of that house, this is equal to bank creating money out of nothing and buy his house

Under a gold standard, where money creation can only be backed by gold, banks can not do this, they must first get gold and then issue money, or to say, their money creation is limited by the amount of gold produced, so they can't steal at grand scale like today