Nick Szabo’s work in respect of trustless protocol technology offers the thesis a minimum granularity (limit) of micropayments are set by mental transaction costs: strangers have to mentally calculate trust before interacting with each other.
This work runs in parallel to Bitcoin, a ledger without a middleman, whose white paper addresses the costs of mediation cutting off the possibility for small casual transactions.
The flaw in Szabo’s thesis becomes obvious: it’s evident a mental cost (a mind tax) exists in spending Bitcoin where it’s primarily seen as an appreciating asset.
Which provokes a further question: what did Satoshi mean by cash?
The Evolution of Cooperation
Two months after the Bitcoin white paper appeared (in October 2008) a paper was published (December 2008) by John Nash in respect of agents modelling coalitions and cooperation in games, the purpose of which was to computationally discover evolutionary stable behaviour.
Nash notes the computations were found to be “heavy”, to the extent they couldn’t have been completed in the earlier days of game theory, and that:
“…in practical game theory the players can be corporations or states; so the problem of usefully analysing a game does not, in a practical sense, reduce to a problem only of the analysis of human behaviour.” John Nash, December 2008.
Stable Social Contracts
In the literal sense, Bitcoin is seen as a transaction medium between “peers” who are commonly taken to mean individuals at a consumer based level transacting — as Szabo offers — without intermediary involvement.
Not so frequently are “peers” translated to mean institutions, corporations or states. This Nash like observation has been interpreted in this tweet:
On an international level, Prisoner Dilemma games are observed to exist between states who model [their] actions in light of behavior and strategy of other states so that properly conceived, the best way to understand international law is as a Nash equilibrium where no player or participant can unilaterally gain by deviating strategy:
“This strategy is consistent with the normativity of law and morality, both of which are characterized by self-interested actors who accept reciprocal constraints on action to generate Nash Equilibria and, ultimately, a stable social contract.” Jens David Ohlin, Nash Equilibrium and International Law, 2011.
A Scaling Insight based on a Stable Social Contract
On an international basis, effective multilateral agreements between nations are difficult to achieve because of the supranational coordination required: most states consent to international legal norms through a process of bilateral agreements with specific partners who [in turn] have their own set of overlapping bilateral agreements.
Contracts and agreements — whether in the village or between relatively larger and unknown players of greater geographical distance — are inter-related to money in this regard: they become enforceable or actionable promises, arbitrated by the trust.
This can create conflicts such as the Triffin Dilemma and therefore be subject to political influence.
And indeed, game theory seeks to explain this type of interaction: comparative qualities of promise were something Nash presented on in the form of a theoretical “Ideal Money”, an international standard that asymptotically stabilises varying Central Bank issuance through a coalition, which, effectively becomes a de facto — not materially or traditionally formed — multilateral contract.
At the time Nash was presenting Ideal Money, he remarked:
“ I was stimulated to think of the possibility of modelling cooperation in games through actions of acceptance in which one player could simply accept the “agency” of another player or of an existing coalition of players.” John Nash, December 2008
Instead of understanding Bitcoin as removing mental transaction costs — mind taxes — at a consumer level, it can witness intuitions as cash — small casual transactions — through the possibility of co-operative benefits created at the supranational level which scale into the village.