Bitcoin: A Peer-to-Peer Nash System
Despite the US dollar coming off the gold standard in 1971, there persists even today a belief that money has to be “backed” by something to hold value. This applies to bitcoin, where some claim bitcoin is backed by energy, math, or computing power: rather, it is grammatically precise to say bitcoin is representative of an energy intensive computer network convening over a problem solving election procedure, in which the majority version wins out — i.e. it’s not holding reserves of energy to be exchangeable for each “minted” coin which is incentivizing network participation.
Neither is it fashionable to say bitcoin meets this definition of “fiat” (money not exchangeable for a commodity), but it’s relevant as to why Satoshi Nakamoto named bitcoin as a cash system, because he could just have conceivably labelled it a peer-to-peer fiat system, without contradiction: this blog therefore presents a brief thesis that one of bitcoin’s special and unique qualities is its deterministic inflation supply density.
Determination in Bitcoin
A reorientation of the central problem of game theory could be as simple as que sera sera (whatever will be, will be), but if we’re interested in what’s optimal, then we can examine bitcoin inflation density in new light: the bitcoin design is axiomatic to John F Nash Jr’s bargaining solution which resolved the prior long-standing problem of determination in economic interaction.
A podcast around this can be accessed here:
This determination therefore gravitates to something no more complicated than a belief or conviction in the commercial media used which doesn’t require any sort of physical backing for the promise to be made good: the independence of bitcoin supply inflation from central bank operations is the probability of bitcoin (asymptotically) approaching 21 million coins total cap, rather than an “arbitrary” approach to inflation targeting a “stable” change in the general price level.
John F Nash Jr, in his Ideal Money, realises this “ideal” (money not intrinsically subject to inflation) would be a “fiat”:
“So it occurred to me to think that the improvement in the quality of forms of money or currency being used in the world might result by a process of evolution instead of as a result of an analogue of the adoption of the metric system or of the “euro”. And of course, after a certain degree of progress by evolution the rest of the progress could possibly be realized by a convention and thus, in effect, by a “fiat” of some sort.” John F Nash Jr., Ideal Money and Asymptotically Ideal Money, 2003
In fact, it appears Nash defines “fiat” as inherently inflationary:
“So there would be nothing to argue about, such as whether or not those most desirous of Keynesian “pardoning” should be favored with a general pardoning of past debts by the fiat of inflation.” John F Nash Jr., Ideal Money, 2002
The Utility of Inflation
There are differing kinds of inflation measures, with one common distinction being between that of a Retail Price Index (RPI) and a Consumer Price Index (CPI). Generally, an RPI is believed to favour a supplier of goods and services (the retailer) as it tends to track comparatively higher, and a CPI favours the consumer of goods and services (the buyer) because it tends to track comparatively lower; and where contracts periodically adjust accordingly. So, when it comes to contracts, each counterparty (the buyer and seller) will want the other to be on their contractual terms.
Nash, in his Ideal Money, then conceived of another kind of index or inflation measure — that of an Industrial Consumption Price Index (ICPI), which he thought more stable and suitable for the longer term, as it would incorporate and reflect the type of commodities or consumables required beyond domestic borders and which would regularly readjust on a moving average basis:
“So it seems that such an ICPI index could be calculated in an essentially “scientific” fashion, after some practical initial choices were made. And this standard, as a basis for the standardization of the value of the international money unit, would remove, where it would be used, the political roles of the “grand pardoners”, the state authorities that can forgive the debts of debtors including, particularly, those of themselves. (The “national debt” of a state can, in principle, be “trivialized” by a sufficient amount of inflation.)” John F Nash Jr., Ideal Money, 2002
Nash later remarks electrical energy could form the basis for such an index, and that the purpose of this index would be for the complete performance of contractual obligations.
In this context, it seems Nash has turned the idea of “cash” into something that is readily trustworthy and irreversible; and that bitcoin might have been called a “cash system” for no reason other than it rhymes with designer-in-chief Nash!