People who work at trading desks in big banks are smart predators. They were trained to spot opportunities. An obvious opportunity is when a client gives an order that will move the market up, given this opportunity, the trader can buy some of the same stuff in advance, then sell after the price spikes. This is called front running and is, in this trivial form, illegal in most jurisdictions.

Front running the central bank

There are front running opportunities that are entirely legal and can be executed at huge scale. Perhaps the mother of all front running opportunities is the so called Quantitative Easing (QE). QE is just a fancy name for the central bank buying securities in giant therefore market moving quantities. They have been buying treasury bonds till now. In anticipation of a coming restart of QE nothing seemed more obvious in 2019 than front running the central bank by buying treasuries before they do, and that is exactly what trader did at huge scale. …

The driver of fees is scarcity of block space. There is an other scarce resource we should also price in, the use of UTXO.

Bitcoin transaction fees rise if block space is scarce thereby take into account current use of a scarce resource, the block space. This is all fine but is not fully aligned with the costs implied by a transaction.

A transaction spends inputs and creates some new outputs. The new outputs become member of the UTXO set, the actual coins of bitcoin, and the spent inputs that were earlier outputs are deleted from the UTXO set.

The UTXO set is huge and ever increasing. It is not as big as the block chain but is still gigabytes with increasing trend. While the block chain can be pruned in a full node, the UTXO can not as it is the ultimate guard against double spending a coin. …

No doubt that miner work for profit, but who pays for it?

A bitcoin’s rules allow that a miner who creates a valid continuation of the block chain includes a transaction that benefits the miner with new bitcoins aka. subsidy and with fees offered by transactions within the block.

The source of fees is explicit and clear. Every transaction within the block pays the difference of the sum its outputs and inputs to the miner of the block.

The source of new bitcoins is however not visible, they are just granted to miner out of nothing. …

Storing wealth in bitcoin is not for free. That cost is traditionally called carry for other assets and is easily quantifiable for bitcoin and is ca. 2.1% p.a. nowadays, read why.


The most obvious cost of storing wealth in bitcoin is that it requires some fee to move it in and out of a wallet. The aggregate amount of fees visible on the block chain as it is the excess income of miner above the subsidy.

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Total bitcoins paid as transaction fees

These fees were paid by those who moved their coins, and were proportional to the byte-size of the moving transaction, not to the moved amount. …

There were many attempts to re-purpose Bitcoin’s secure transfer mechanism of its own units to transfer property rights. I present a new breakthrough approach.

Even those skeptical of Bitcoin’s monetary value recognize that it transfers its own units with unprecedented security, un-censorable and global.

Having the same utility to transfer any other asset, that is e.g. USD, Land, Equity, would be enormously useful. There were many attempts to do this with all kinds of overlay protocols and side chains linked to the Bitcoin chain.

None of these approaches managed to establish a design pattern until now that would have been as widely used as a much less secure option offered by Ethereum. …

Unchecked inflation of money supply through fractional reserve is creating a mess in the world we live in. Bitcoin could overcome this mess implementing this proposal!

Fractional Reserve Banking

The fiat currencies we use nowadays come into existence by someone borrowing them. To illustrate the mechanics let’s consider the case of Bob who buys a house with a mortgage loan. This implies the following series of events:

  1. Bob signs a mortgage contract with Alice the banker.
  2. Alice ensures that she has the right to sell the real-estate in case Bob would fail to follow terms of the contract. …

Those regularly bullying markets might want to know.

The number goes up and up. This could get inconvenient for those who got used to their omnipotence of bullying the markets in whatever direction they like, mostly up.

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Yes, I am talking of central banks. Their interest rate policy became the only parameter worth trading. In this late phase of their power their actions move everything. Equities, Bonds, Commodities rise in sync every time the FED or ECB reassures to provide yet more liquidity, that is money for nothing (zero interest) or in exchange for bonds that no one else would buy at prices they do (called QE). …

Let’s assume Libra works as a technology and people love it. Libra Reserve would qualify either as a systemic risk or as a market participant with unfair advantages, likely both.

I formulated a harsh critique of Libra’s tech as is, but hey it is software, it will evolve, and with enough persistence and enough funding it could at some point become technically usable.

Let’s assume people love it, as it is easy to use and delivers on the promise of a quite stable value if measured in traditional currencies. How big could its Libra Reserve grow?

There are many ways to estimate its magnitude, some…

Network effect is a weak argument for Bitcoin’s value. There is a stronger one: There can only be one definition of time with computation.

An argument against Bitcoin’s value is that alternate crypto currencies, also known as “shitcoins”, exhibit the same digital scarcity within their own network. Pundits add up market cap of Bitcoin with shitcoins to come up with a market cap of “crypto”.

Some think the existence of shitcoins defies Bitcoin’s scarcity and show that Bitcoin can be copied and multiplied and consequently Bitcoin and all crypto is worthless.

It is pointless to argue against this with the network effect of Bitcoin, as the question is not if Bitcoin could be replaced with a better version of itself, but if scarcity can be achieved at all by a design similar to Bitcoin. …

Gini coefficient is the popular measure of inequality, that I attempt to estimate for Bitcoin, with a simple approach.

Bitcoins exist technically as unspent transaction outputs (aka. UTXO) which may be spent by their pseudo anonymous owner. The value of UTXOs vary widely. They are the actual coins of the system. As of now, there are UTXOs of a few satoshis and some with many thousands of Bitcoins.

We could use the value distribution of the UTXO set to estimate Gini coefficient, but that would only be meaningful, if every Bitcoin holder would own exactly one of them. …


Tamas Blummer

Independent, Bitcoin Developer since 2012, Former: CLA @ Digital Asset Holdings, VP @ CoinTerra, CEO @ Bits of Proof, Engineer, Financial Risk Manager.

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