Jun 15, 2019
Satoshi’s Game: Central Banks and the Social Contract
Bitcoin functions in ways making it hard to define: regulators are unsure to classify it as a currency, commodity, security or property.
The differing forces at play mean Bitcoin as a verb may prove more precise: language can prioritise actions rather than find static, culminative points tractable to those in proxy.
Defining a Social Contract
A social contract, like any other kind [of contract], is near impossible to unequivocally stipulate to this degree: someone would have to decide what’s included, excluded, and how it’s enforced.
It’s better to understand the social contract as a general parameter by which we all can get along.
In context of macro economics, Central Banks use this approach to rationalise and communicate a variable (inflation) to broad objectives and mandated principles of price stability, prosperity, and growth.
In the ideal form, and on a global level, such a contract would be free from interpretation problems.
Nash’s Ideal Money and Satoshi’s Bitcoin
John Nash’s Ideal Money and Satoshi Nakamoto’s Bitcoin bear comparison in the way their creators described the stability and portability of an international and apolitical money standard:
“This index could be constructed by computing a moving average…” John Nash, Ideal Money, 2002
“…the proof-of-work difficulty is determined by a moving average targeting an average number of blocks per hour.” Satoshi Nakamoto, 2008
“gold formed a very efficiently moveable medium for the transportation of a value exchangeable for other values…However, right now platinum would be even better than gold, because it has more value per unit of weight.” John Nash, Ideal Money, 2002
“As a thought experiment, imagine there was a base metal as scarce as gold but with the following properties: — boring grey in colour — not a good conductor of electricity — not particularly strong, but not ductile or easily malleable either — not useful for any practical or ornamental purpose and one special, magical property: — can be transported over a communications channel…” Satoshi Nakamoto, 2010
Games of Alignment and Hyperbolic Growth
Nash observed money bringing into existence games of transferable utility — where there is a gain, on average, for all players, irrespective of the outcome — and where a “good money” became a standard, could allow for comparison of contracts (sovereign issuance) where easily quotable prices were of value and convenience.
Interestingly, Nash also observed a money could be too good where it created a “safe deposit box singularity” and while Nash noted the history of money has not known this prior be a problem, such a problem could be avoided if this theoretical good money was given a steady and constant rate of inflation to the extent it could be used as a channel for investment.
In this regard, Satoshi described Bitcoin as a cash system and a version of cash — rather than cash per se — offering the possibility [that] Bitcoin is the better money by being figurative to a parallel [and ideal] network un-requiring of trusted principals through computational settlement — peer to peer — so mediation costs don’t cut off the small casual transaction.
Avoiding as a result problems arising from contractual translation disputes, allowing benefits of this trustlessness to form basis of convergence between major currencies as they express a taste for such a preference.
Something Satoshi didn’t have time to explain and which has yet to corral our bargaining habits.
