Cryptocurrencies change everything for "value" in the same way the internet changed everything for "information".
Bitcoins are the logical COMPLIMENT of traditional bits due to being un-copyable.
Compare:PUBLIC "internet bits" are FREE and have a value judged by the INDIVIDUAL reader.
PRIVATE bitcoins have COST and have a value judged by the SOCIAL exchanges.
Cryptocurrency protocol's are to "value" what the internet is to "information" because of this complimentary nature.
Will Bitcoin Win?Bitcoin is a specific cryptocurrency protocol for storing and transferring "value", but it could become THE protocol for doing so in society as a whole. Certainly there seems to be a benefit to being first-to-market. There is nothing to stop similar protocols from operating at an exchange rate with it, or completely outside of it for things other than currency or asset value such as electing political and intellectual leaders more intelligently. The over-arching feature is that the cryptocurrencies prevent "double-voting" aka "double-spending". Banks and other cooperating entities with large assets like a housing industry could legally agree to hold and transfer assets in a different coin (or in subset of bitcoins isolated from the "wild" bitcoins as allowed by the bitcoin protocol) and declare among themselves through contracts that those coins are worth more. In this way bitcoin can be prevented from representing the world's assets, about $250 trillion ($120 million per coin). This can't prevent bitcoins from achieving the value of (i.e., replacing) the world's combined "M2" money supply (about $20 trillion which would be $1 million per bitcoin as a minimum value since bitcoins will be lost and others will be locked into contracts via the bitcoin protocol and can't escape into the "wild" exchanges). Alternative currencies will continue to make life "interesting" for bitcoin holders, preventing this high value as well as other competitors like cash and silver coins. The superior coin will win, and the degree to which a superior coin is not identified is the degree to which cryptocurrencies will fracture the world's M2 money supply.
Scripting Value Into bitcoinsJust as bitcoin is a protocol running on top of the internet protocol that allows the storage and transfer of value, the bitcoin protocol has features built into it that allow other protocols to ride on top of each coin. Protocols can be defined that ASSIGN current and future value to the coin rather than depending on the exchanges.
Bitcoin does not dictate value, but it has a simple FORTH-like scripting language Script (
https://en.bitcoin.it/wiki/Script ) (up to 10 kB, about 100 words, not Turing complete, no loops) and n of m transaction feature built into it that anyone can apply to their coins (or piece of coin) and force inheritance to all future owners in order to define the current and future value of a coin. It has no value if counterparties do not like what you've scripted into your enslaved coin. You can see Mike Hearn describe these features of bitcoin:
https://www.youtube.com/watch?v=mD4L7xDNCmAConsequences of Enslaving Coins to a Common "Value-Plan"A large group of people could enslave their coins to a predictable dollar value that rises at a desired rate to reach a final value according to the script. They can't sell their coins unless the protocol is adhered to and the coins' script would require inheritance of the script by all subsequent owners, thereby assuring future owners of the value of the coin PROVIDED they like script enough to buy it. Alternatively, a coin could evenly pay all previous owners any excess profits that future owners acquire based on how long they held the coin, minus what they made when they sold it, to be finalized at the final sale that occurs after some fixed date. By writing an intelligent script you are adding intelligence to the coin and thereby creating value in the coin itself, above the value of other coins. If too many similar coins are enslaved this way with too fast a rate of value rise, and if holders abandon these similarly enslaved coins faster than newcomers are willing to buy them, then the coins could lose all value and be lost forever. Coins can be ruined forever with a bad script, but the script could allow for this and de-slave the coin accordingly. On the other hand, if the enslaved coins sell faster or at a higher price than the free coins this would encourage other coin owners to enslave their coins or cause their coins to be bought at a lower price in order to be scripted and then sold for a profit. Enslaving coins could increase the value of all other coins, which the enslaved coins could benefit from when they are freed, if they are freed before a flood of freed coins.
Scheduling the Increase in ValueAn intelligent script could be a meme that spreads to all coins quickly, if people find the script appealing. Ironically and contrary to current exchanging, early adopters of the script could be rewarded equitably instead of outrageously so that latecomers are not penalized. There should be a definite "good-for-society" plan for script-enslaved bitcoins (i.e. value-enslaved bitcoins) to replace other currencies. The script must be noble with the ultimate goal of helping humanity which can be part of its selling point. But not done in a tricky way simply for the purpose of profit or fast adoption, but really and truly for the goal of helping humanity. A script that adopts, implements, and advertises this goal will beat out all other coins and scrypts by being able to work together more effectively than un-enslaved coins. Cancerous scrypts might win at first. The noble enslaved coins' goal should be to enable intelligent world-wide commerce more than profit for the holders, but they seem to need a selfish and cancerous aspect at the beginning in order to advertise themselves for adoption better than more cancerous versions.
The script might allow holders to vote themselves out of the enslavement by bitcoin's n of m feature. Late adopters should not be overly penalized. Early adopters should be rewarded with a logarithmic instead of exponential increase in profit. Like a good religion, maybe it should be easy for coins to join and leave. Maybe the enslavement should be gentle, but it also seems required that the team have a level of commitment to the value-plan. The value assignment has everything to do with defining what humanity wants as a whole from its economics. In artificial intelligence you can "feed" the program more computer resources when it is achieving the desired goals. More on this in a section below.
Enslaved coins can't be bought and sold on existing exchanges (the "wild" exchanges). Bitcoins that have not been enslaved to a value are "wild and free". Along with each method of enslaving coins, it seems like an exchange would need to be set up. A coin could free itself if the script detects that its exchange has failed.
Methods of Enslaving CoinsMike describes scripts looking at outside data to make decisions about the coin's value. You might be able to join a "club" of human owners such that the script assigned to each coin requires that no one in the "club" can sell the scripted coins unless say 7 out of 10 of the other owners agree to the price to which you want to sell. Or the script could do nothing more than request the assigned value from an intelligence-seeking coin or coins (n of m) that operate independently of the enslaved coins. The external value-assigning coin could simply be a vote system, but it seems like each voter would then need to be rigidly identified to prevent the value assignment from being hijacked. Or maybe the largest holders of the enslaved coins could dictate value (which does not seem like a wise method). A consensus could be reached to determine enslaved bitcoin "value", just as a consensus is reached in determining that coins are correctly transferred by proof-of-work. Would proof-of-work be needed to assign value? Could proof-of-stake be used? I can't think of a reasonable way for a script to assign its own coin's value witout looking at external data.
Hierarchies that Discover Intelligent Solutions (highest profit)These "value scripts" can be placed one inside the other operating under different rules but within a hierarchy. This would be like a company, government (local, regional, national), or religious hierarchical system. It can assist or replace our current structures. These structures are meant to encourage higher intelligence in the system by encouraging internal competition at all levels while achieving a higher level of system-wide profit. For example in companies there is a competitive selection going on for employees, teams, divisions, and companies. This also follows A.I. company Numenta's cortical learning algorithm (CLA which replaced their HTM white paper) that tries to mimic the human cortex where synapses, segments, cells, and then cortical regions continuously compete at all levels for computing resources to do the best pattern prediction (the profit).
Basket of Commodities for Measuring Changes in ValueWe could enslave our personally-held bitcoins to predictably rise and be finally pegged to a basket of commodities. Most economists from Hayek to Keynes agree on using a basket of commodities. Hayek even said it was better than gold, but the implementation would be difficult. Keynes tried to implement it, probably with too much government control thrown in. Warren Buffett's mentor Benjamin Graham wrote two books on it. This prevents bubbles automatically by restricting the money supply when commodities are in short supply. If commodity production becomes more efficient with technology then everyone would get an automatic increase in the value of their coins. As technology increases the efficient USE of those commodities, there would not be an additional price deflation, but the products and services we buy would be improved.
A Basket of Commodities is Not the Best -- why free markets are not system-wide smart --
You could define the value of the currency in such a way that society as a whole achieves a desired goal such as preventing overpopulation and biosphere destruction. The free market without government intervention only does what's best for the two agents involved in each transaction. It does not prevent direct damage to third parties or a tragedy of the commons like resource depletion or brutal competition that leads to countries winning the free trade game from overpopulated cheap miserable labor (3rd world) or wealthy and intelligent workers who are none-the-less miserable as in South Korea (
http://qz.com/153380/korea-is-the-worlds-top-producer-of-unhappy-school-children/). Even under excellent law it seems difficult to prevent monopolies that become harmful even when they are completely honest. System-wide intelligence does not automatically emerge from the sum of all mutually-profitable transactions. To repeat, a purely profiting-seeking market agent cooperating honestly with other agents in every transaction does not automatically lead to system-wide profit. A single winning agent holding all the wealth and a zero size marketplace is the most efficient outcome to a sequence of fair transactions. Evolution creates intelligence all all levels simultaneously (the simple selfish gene theory has been disproven:
http://aeon.co/magazine/nature-and-cosmos/why-its-time-to-lay-the-selfish-gene-to-rest/ ). Biosphere collapse is the result of a completely free market that never controls itself. So a currency that depends only on a basket of commodities can prevent bubbles, but it can't stop itself from growing to an uncontrolled end such as biosphere destruction and human average misery through brutal economic competition. Votes are used to more evenly distribute political power which is legal power which is control of the legal tender. Government's role is to control the money with wide strokes for large goals such as defence against pollution and other distributions of resources and wealth.
Government is Control of Currency-- AND VICE VERSA --
By use bitcoin scripts to control the value of bitcoins in transactions, we are initiating a GOVERNING control to achieve a system-wide GOAL. In other words, the parallel cryptocurrency of votes I described above that intelligently decides the value of the coins that adopt the script-control is the government of that economy of coins. From examples in biology and artificial intelligence and government itself, it seems the smallest transactions of a given geographic location would follow a specific script that is different from other locations and be at the bottom rung of a hierarchy of larger transactions. There could be a world-wide economy of scripts competing against each other. But at the top level we a single script keeping an eye over all of them that tries to increase average human happiness and prevent biosphere destruction (which still falls under "human happiness"). Otherwise, cancerous economies of coins that seek only to have cheap human labor and expand rapidly will win.
Basket of Commodities PER PERSON A currency pegged to a basket of commodities divided by the number of people involved in that economy will FORCE an increase in the standard of living. It does not solve all ills especially not optimally, but it is an excellent broad stroke to use if you care about humanity. Since poor people need commodities as a percent of wealth more than wealthy people, it evens out the standard of living. You could do that worldwide, but then it might subtly encourage the killing off of groups of people in countries that are not producing as much as others. If you really want to limit the number of people you could bias the commodity basket against the production of food, but historically we have chosen the opposite by using legislation to bias the economics towards excess production of food for obvious reasons.
Micro-Control of Coin ValueI've only thought about broad strokes but at the smallest transaction level coins could take on higher or lower value according to the scripts in order to implement the "governing" without government. For example forcing cigarretes at the transaction level to be more expensive than they otherwise would be and offsetting this with decreasing the cost of lung cancer treatment. So it's a tax and subsidy. We already do it but we have an enormously in-efficient system for implementing it.
Basket WeightingThe basket should be based on a weighted proportion of the commodities currently available for sale with the weighting based on the total dollar amount of each commodity currently being used. I would go with the top 20 commodities to keep things simple for the algorithms that would be automatically calculating the proper value and become part of the n of m consensus.
Intelligence-Seeking CoinsThere should be an ECONOMY for voting who is the best political leader or for who has the best economic ideas, not 1 vote per person. These would be used to assign value to coins at different levels in the hierarchy of value assignments. It would be fluid as the intelligence improves. It would draw from artificial intelligence ideas on ensembles of dumb agents that can achieve intelligent outcmoes and evolutionary algorithms.
ClosingI doubt anything I've described will be consciously attempted, except for what Szabo and Satoshi already had in mind as bitcoin was created (see Nick Szabo's papers [Trusted Third Parties Are Security Holes](
http://szabo.best.vwh.net/ttps.html) and [Secure Property Titles with Owner Authority](
http://szabo.best.vwh.net/securetitle.html)if you want a further understanding of why Satoshi invented bitcoin). What will happen is that the scripts will simply evolve to further economic development with winners and losers and the end does not promise survival or optimal happiness. I should mention that as crypto-anarchists (aka crypto-freedom fighters) Dai, Szabo, and Satoshi might gasp at some of the things I'm suggesting their currency be used for. Nothing in Nick Szabo's or Michael Hudson's economics blog address human happiness. They assume an efficient marketplace with fair transactions will produce a good outcome. Their economic philosophies, although far superior to anything else I can find, only produce a powerful economy that has no goal except expansion. An intelligent "governing" control of the currency during transactions is needed to produce good system-wide goals, replacing banks with bitcoin and governments with the scripts that define the bitcoin values. Already life should be a lot easier than it is for everyone. Lack of technology and lack of fuel has never been our problems. Not intelligently working together for system-wide profit has been the problem.
