Annual 10% bitcoin dividends if mining were Proof-of-Stake

[Peter R]

Doing work doesn't entitled to anything. You can dig hold and refill them with the soil you just extract all day long, nobody in his right mind will pay you to do so.

Paul Krugman has said exactly this.  

In fact, I bet Paul Krugman would simultaneously support PoS and paying people to dig holes and then fill them in.  He would say the PoS is superior because it saves energy, and then he would say that share holders should create more money to pay people to dig holes and fill them to keep the economy going.  

So you admit that PoW is digging hole and refilling them?

Quite the opposite.  I admit that I think Paul Krugman believes that money should be easy to create (like PoS) so that we can direct it for the "greater good" towards projects that waste our natural and human resources.  

Proof of work makes money difficult to create so that it cannot be easily misdirected towards wasteful projects.  

[rpietila]

So you admit that PoW is "digging hole and refilling them" kind of work?

Krugman can say whatever he wants, shareholders won't destroy their wealth to please him.

I am sorely afraid that the instant (or not too long after) the U.S. stops using any kind of threat of violence to support the U.S. dollar, its value collapses.

Gold will still be dug from the ground with great effort as usual, no matter if USD is destroyed or not.

[BldSwtTrs]

So you admit that PoW is "digging hole and refilling them" kind of work?

Krugman can say whatever he wants, shareholders won't destroy their wealth to please him.

I am sorely afraid that the instant (or not too long after) the U.S. stops using any kind of threat of violence to support the U.S. dollar, its value collapses.

Gold will still be dug from the ground with great effort as usual, no matter if USD is destroyed or not.

So the day where there is no more gold under the ground (assuming this is possible, for the sake of the argument let's ignore the rising marginal cost of the extraction which make this impossible), do you think the value of gold would somehow decrease since no work would be required to extract it?

PoS is a kind of gold which were already fully mined.

[Peter R]

I just thought of something.  When did humans begin to most heavily damage the environment?  It started shortly after the US went off the gold standard in 1933.  The fact that money became easy to create helped finance that enormous waste of resources in WWII and has continued to support our "consumer economy."

In fact, most "economic stimulus" by the Fed is an attempt to get people to consume at a faster rate.  And the faster we consume, the faster we use our natural resources.  

The US went off the gold standard because "it was too difficult to create hard money."  They moved to a new type of soft money that, unlike gold, could be created by stakeholders without work.  Since this money was easy to create, it eventually got created in abundance.  

[Adrian-x]

The belief that mining somehow "backs" or adds value to bitcoin is like a cult mentality.

It is a fact that mining somehow backs and adds value to Bitcoin. But how to explain it best? Who can help? (I am at a loss despite calling me "monetary economist" even before Bitcoin was invented   )

@ toast, the evolution of logic(scientific method)  cult is an open cult many follow the scientific method because it is functional but some are just cult follows and not open to reason, your job is to distinguish between the two.

Ludwig von Mises describes how the commodity with the most general utility becomes "money"  then through evolution his regression theorem explains how we get fiat.

It is important to understand that "money" is you labour or the product of your labour, and not all labour or products are equal. (Digging a hole in the ground and filling it up is labour intensive but has no value, like wise making something no one wants lacks value)

Subjective human preferences give commodities there value, this value changes but it represents the majority.  (This is called intrinsic value, it should be called functional utilitarian value - gold bugs get hung up here as they can make a cup from gold but not cryptocoins.)

Adam Smith presents arguably the definitive argument of on how we all  cooperate in a free market all notable economists agree including Marx.

Smith explains how excess resources in an economy lead to the division of labour which in turn leads to codependent relationship in an economy like mining copper and copper being manufactured into a plow which in turn increase productivity resulting in competition and an increase in productivity.

Smith also shows how the excess resources are invested in the most valuable commodities and how those commodities become money as everyone can use them in trade to be more productive.

Those comprises that improved productivity were metals, bronze and later silver and gold because they out lasted all others.
 
Over time the value of metals came to represent the cost + profit it took to mine them.  They held there value in the free market because capital accumulates where it it provided the most utility.

Mises explains how we get from then to now, understanding this and projecting explains how fiat causes mal-investment and the mis-allocation of resources.

Now PoW ensures the cost of money requires the investment of excess resources, this is consistent with the work of Adam Smith it's value is derived by the majority its production is limited by competition and availability of excess. It isn't a cult.  It's value is free market driven and like gold its production gets exponentially more expensive.

Now PoS has more similarity to how capital functions today, it requires an all knowing enlightened administrator, capital allocation is not determined by the free market but by the controller of the capital.

[Peter R]

The belief that mining somehow "backs" or adds value to bitcoin is like a cult mentality.

It is a fact that mining somehow backs and adds value to Bitcoin. But how to explain it best? Who can help? (I am at a loss despite calling me "monetary economist" even before Bitcoin was invented   )

@ toast, the evolution of logic(scientific method)  cult is an open cult many follow the scientific method because it is functional but some are just cult follows and not open to reason, your job is to distinguish between the two.

Ludwig von Mises describes how the commodity with the most general utility becomes "money"  then through evolution his regression theorem explains how we get fiat.

It is important to understand that "money" is you labour or the product of your labour, and not all labour or products are equal. (Digging a hole in the ground and filling it up is labour intensive but has no value, like wise making something no one wants lacks value)

Subjective human preferences give commodities there value, this value changes but it represents the majority.  (This is called intrinsic value, it should be called functional utilitarian value - gold bugs get hung up here as they can make a cup from gold but not cryptocoins.)

Adam Smith presents arguably the definitive argument of on how we all  cooperate in a free market all notable economists agree including Marx.

Smith explains how excess resources in an economy lead to the division of labour which in turn leads to codependent relationship in an economy like mining copper and copper being manufactured into a plow which in turn increase productivity resulting in competition and an increase in productivity.

Smith also shows how the excess resources are invested in the most valuable commodities and how those commodities become money as everyone can use them in trade to be more productive.

Those comprises that improved productivity were metals, bronze and later silver and gold because they out lasted all others.
 
Over time the value of metals came to represent the cost + profit it took to mine them.  They held there value in the free market because capital accumulates where it it provided the most utility.

Mises explains how we get from then to now, understanding this and projecting explains how fiat causes mal-investment and the mis-allocation of resources.

Now PoW ensures the cost of money requires the investment of excess resources, this is consistent with the work of Adam Smith it's value is derived by the majority its production is limited by competition and availability of excess. It isn't a cult.  It's value is free market driven and like gold its production gets exponentially more expensive.

Now PoS has more similarity to how capital functions today, it requires an all knowing enlightened administrator, capital allocation is not determined by the free market but by the controller of the capital.

+1

Nice write-up Adrian. 

[mgburks77]

Ludwig von Mises

Austrian economics is pseudo-intellectual twaddle. Forget that nonsense.

It is important to understand that "money" is you labour or the product of your labour, and not all labour or products are equal.

Money is a indicator of social status.

It determines what resources society makes available to you as a member of society.

The value of labor or any product is entirely subjective. To one person a shell represents a days work, to another it is a gold piece, to still another it is a piece of paper.

The nature of the medium of exchange is irrelevant to this process. It is only relevant that something represent what resources are afforded to you from the collective efforts of society.  

The idea that mining "backs" money with work is magical thinking.

[Adrian-x]

Ludwig von Mises

Austrian economics is pseudo-intellectual twaddle. Forget that nonsense.

It is important to understand that "money" is you labour or the product of your labour, and not all labour or products are equal.

Money is a physical representation of social status.

It determines what resources society makes available to you as a member of society.

The value of labor or any product is entirely subjective. To one person a shell represents a days work, to another it is a gold piece, to still another it is a piece of paper.

The nature of the medium of exchange is irrelevant to this process. It is only relevant that something represent what resources are afforded to you from the collective efforts of society.  

The idea that mining "backs" money with work is magical thinking.

You confuse Money and a money substitute.

You view is well represented by Nobel economist who think we need to be invaded by aliens to avoid the moral problem of going to war with each other. They are high on fiat.

Read  Mises's regression theorem, it is logical and free of wishful alien invasions, don't just dismiss it.
Admittedly it is out dated as we now know historically we used social debt as the first currency before barter, and later evolved the jubilee, and some think it inconsistent with cryptocurrencies.  It's not alien voodoo but not unproven.  


The magical thinking goes like this the demand for money backs the work invested in mining. It is as risky as digging a hole in the ground for no reason.

[SlipperySlope]

No, mining computes useless SHA256s. It's only purpose it to decentralize block production which can be done with POS or other consensus mechanisms.
The belief that mining somehow "backs" or adds value to bitcoin is like a cult mentality. "The bitcoin algorithm does jobs currently held by ..." - except these parts can all work fine, you just skip the part where you do a billion hashes.

The entire Bitcoin network uses less energy than one out of thousands of large banks like the Philippine National Bank.

Satoshi believed, as do I, that miners by competing with each other invest in equipment and power equal to the value of the mining reward. He said . . .

It's the same situation as gold and gold mining.  The marginal cost of gold mining tends to stay near the price of gold.  Gold mining is a waste, but that waste is far less than the utility of having gold available as a medium of exchange.

I think the case will be the same for Bitcoin.  The utility of the exchanges made possible by Bitcoin will far exceed the cost of electricity used.  Therefore, not having Bitcoin would be the net waste.

The cost of proof-of-work is not merely equal to the power used, it is indeed equal to the mining rewards - $557,358,000 annually at today's quoted price.

I concede that this is a lower figure than the 10% of the world's economy consumed by the financial sector, yet it is a waste because Satoshi could not conceive of proof-of-stake, nor did he debate the concept. The existing idea of hashing proof-of-work instead was adopted for Bitcoin.

[SlipperySlope]

I just thought of something.  When did humans begin to most heavily damage the environment?  It started shortly after the US went off the gold standard in 1933.  The fact that money became easy to create helped finance that enormous waste of resources in WWII and has continued to support our "consumer economy."

In fact, most "economic stimulus" by the Fed is an attempt to get people to consume at a faster rate.  And the faster we consume, the faster we use our natural resources.  

The US went off the gold standard because "it was too difficult to create hard money."  They moved to a new type of soft money that, unlike gold, could be created by stakeholders without work.  Since this money was easy to create, it eventually got created in abundance.  

Permit me to add that banks create credit that fuels the boom and bust cycles that cause the misallocation of economic resources.

In a possible Bitcoin world, great wealth, perhaps inconceivably great, is available for spending on good causes without the need to borrow.

[mgburks77]

Ludwig von Mises

Austrian economics is pseudo-intellectual twaddle. Forget that nonsense.

It is important to understand that "money" is you labour or the product of your labour, and not all labour or products are equal.

Money is a physical representation of social status.

It determines what resources society makes available to you as a member of society.

The value of labor or any product is entirely subjective. To one person a shell represents a days work, to another it is a gold piece, to still another it is a piece of paper.

The nature of the medium of exchange is irrelevant to this process. It is only relevant that something represent what resources are afforded to you from the collective efforts of society.  

The idea that mining "backs" money with work is magical thinking.

You confuse Money and a money substitute.

You view is well represented by Nobel economist who think we need to be invaded by aliens to avoid the moral problem of going to war with each other. They are high on fiat.

Read  Mises's regression theorem, it is logical and free of wishful alien invasions, don't just dismiss it.
Admittedly it is out dated as we now know historically we used social debt as the first currency before barter, and later evolved the jubilee, and some think it inconsistent with cryptocurrencies.  It's not alien voodoo but not unproven.  


The magical thinking goes like this the demand for money backs the work invested in mining. It is as risky as digging a hole in the ground for no reason.

I'm very familiar with Austrian economics. It's an apologetic for the economic polices of the Austro-Hungarian Empire and thus represents a rationalization for policies that are nothing less than a recipe for oligarchy. Notice that the Austro-Hungarian Empire is now in the wastebin of history. There's a reason for that and it is very much the same as the reason for what we currently face in the world today.

Also, so you know, you have no idea what my economic ideas are about, but since you think must be a choice between Austrian economics and the corruption of Keynes' economic theories that is currently dominant I can see you have the same extremely limited economic perspective shared by almost all Americans.

If the idea of a free currency is going to take hold those ideas needs to be jettisoned quickly.

[Peter R]

In a possible Bitcoinshares world, great wealth amounts of shares, perhaps inconceivably great, is available for spending on good causes without the need to borrow.

Precisely.  

If bitshares are easy to create this is what I expect to happen "for the greater good."  

[SlipperySlope]

I am sorely afraid that the instant (or not too long after) the U.S. stops using any kind of threat of violence to support the U.S. dollar, its value collapses.

Gold will still be dug from the ground with great effort as usual, no matter if USD is destroyed or not.

Do you generally hold to the intrinsic value argument, that is ironically used against bitcoin by its detractors? Some say that digital virtual currencies have uncertain value because they cannot be used for anything else, e.g. precious metals have a use as jewelry. Fiat currencies have a non-intrinsic value as legal tender for the payment of taxes.

Theory of money allows for the absence of intrinsic value insofar as the particular currency is widely accepted as having value. I argue that an electronic cash, peer-to-peer payment system, operating without trusted intermediaries has value due to its comparative utility - even without being legal tender anywhere yet.

[mgburks77]

goldbugs 

[SlipperySlope]

In a possible Bitcoinshares world, great wealth amounts of shares, perhaps inconceivably great, is available for spending on good causes without the need to borrow.

Precisely.  
If bitshares are easy to create this is what I expect to happen "for the greater good."  

I believe that the triumph of capitalism is complete. World events over the past few decades and the ebb and flow of welfare-state governments have precluded the mass confiscation of Bitcoin for economic leveling and such. I do expect small percentage rate wealth taxes, which are already applicable in certain jurisdictions, as are estate taxes which also apply to bitcoin.

My intuition is that as bitcoin continues its 10x average annual price appreciation, then large holders will tend to save, and will only spend on necessities and the most certain of investments. Take the example of Bill Gates who, while CEO of Microsoft, began setting aside a stash of cash equal to the company's annual sales. This tactic has been widely copied. Perhaps $1 trillion USD is held as a cash safety net by large enterprises worldwide. Likewise sovereign wealth funds are saved for necessary and very deserving possible future expenses.

[mgburks77]

In a possible Bitcoinshares world, great wealth amounts of shares, perhaps inconceivably great, is available for spending on good causes without the need to borrow.

Precisely.  

If bitshares are easy to create this is what I expect to happen "for the greater good."  

Why do you use scare quotes to describe the concept doing something for the greater good of humanity?

Basically the world is in an economic mess because because the people who control the economy are ignorant and still  believe in fanciful theories from the 18th and 19th centuries

[rpietila]

Basically the world is in an economic mess because because the people who control the economy are ignorant and still  believe in fanciful theories from the 18th and 19th centuries

LOL. The mess originated when they threw the said theories and common sense out of the window.

(Almost as hilarious as saying that something with an IPO is a coin and not a share.. )

[Peter R]

I am sorely afraid that the instant (or not too long after) the U.S. stops using any kind of threat of violence to support the U.S. dollar, its value collapses.

Gold will still be dug from the ground with great effort as usual, no matter if USD is destroyed or not.

Do you generally hold to the intrinsic value argument, that is ironically used against bitcoin by its detractors?

It seems to me that the essence of the PoS-vs-PoW debate is whether one prefers "soft" or "hard" money.  I would define "hard" money as coins that are created by doing work (mining for gold or searching for nonces).  I would define "soft" money as shares that are created by popular agreement of stakeholders (issuing new fiat currency or creating new PoS shares).

PoS supporters see PoW as wasteful because time and energy is spent looking for coins.

PoW supporters see PoS as wasteful and dangerous because:

  (a) there are no physical constraints limiting share creation (only popular opinion) which tends to over issue shares for the "greater good" resulting in malinvestment and misallocation of capital.

  (b) it is not possible to stop or necessarily even identify that a cabal of anonymous central planners is controlling a PoS system.


What I find disingenuous is that it seems some PoS supporters argue that PoS-shares are hard currency that somehow got around the constraint that work is required to create hard currency (coins).  If your PoS shares have no work requirement, then it is not a lot of work to issue new shares by definition.  

[mgburks77]

I believe that the triumph of capitalism is complete.

The world economy is a mixed economy, but let's put that point aside for the moment,

"Capitalism", even in the altered form it currently takes, is standing still only because there have been massive infusions of cash pumped into the economy. Capitalism is a failed system and is on it's last legs. History is not over by any means.

Over the last 100 years or so we've adopted the welfare state because pure capitalism provides no basis for a social compact and without social reforms the system would have already collapsed.

Consider this:
How is mass consumerism going to operate as a motive force when people don't have any money or any way to get money because human labor will be obsolete within a 100 years?

There will be no tax base to support them with the welfare state. So basically what that means is market distribution has reached the limit of it's utility and will be abandoned by the end of the century.

The adoption of digital currency will be a minor stop down that path.

[mgburks77]

Basically the world is in an economic mess because because the people who control the economy are ignorant and still  believe in fanciful theories from the 18th and 19th centuries

LOL. The mess originated when they threw the said theories and common sense out of the window.

(Almost as hilarious as saying that something with an IPO is a coin and not a share.. )

That opinion has it's basis in a basic misunderstanding of historical facts.

The truth is that reduced economic regulation due to the adoption of policies such as those outlined von Mises in the last decades has resulted in the top 2% of the population owning 80% of the wealth. This is what caused the current economic problems.

That is what happens when you adopt policies such as those championed by Austrian economists. Corporate profits have never been higher, but that money has to come form somewhere and that somewhere is our pockets. That is why the middle class is gone and people have less access to money than ever before.

That is oligarchy. That's what type of political economy we have.