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Hayek, satoshi nakamoto and bitcoin

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Then there's bitcoin's mission.

Original title: "schmooze hayek, satoshi nakamoto and bitcoin"

Note by the blue fox & black cake;

At 18:15 and 5 seconds on January 3, 2009, the genesis block of bitcoin was born. "The Times 03/jan /2009 Chancellor on brink of second bailout for Banks" was The headline of The Times' headline of The day: "January 3, 2009 Chancellor on The brink of a second bailout for Banks."

What seems to be an understatement is a reference to bitcoin's mission to build a new monetary system in a completely different way, providing an alternative path to solving the economic crisis. It is often said that bitcoin was originally intended to be a peer-to-peer cash system. From the blue fox's point of view, this is its path, not its goal. The ultimate goal is to build a new monetary system that can solve financial crises.

Now, 11 years later, the parallels between Austrian economics and bitcoin monetary policy are emerging. It is a very different way of thinking from modern economics. It opens up the possible direction of human economic development.

Hayek's insight into the nature of knowledge is diffuse

Hayek once said, "in the determination of prices and wages, the specific information possessed by each participant in the market process affects them, and the sum of the facts of all the actions of these individuals cannot be known to the scientific observer or to any single brain." No one in the world, not Einstein or Newton, had all the knowledge. Knowledge is scattered in the brains of different people in different parts of the world.

If knowledge is dispersed in terms of the sum of facts, what effect does this have? Hayek understood this well: "a centrally planned economy will never be as efficient as an open market because a single subject knows only a fraction of the total amount of knowledge possessed by all the members of society." The fact that knowledge is dispersed means that there will never be an all-knowing, all-powerful decision-making body. This leads to the natural absence and unpredictable consequences of purely single-institution planned economic decisions.

Hayek once published an important economic literature, "the application of knowledge in society". Here, knowledge refers to the sum of various facts, such as the price, demand, substitutability, marginal cost and technological upgrade of different commodities in the market. This knowledge is enormous. But there's an important signal here, and that's the price. Price is the ultimate representation of this knowledge in a highly condensed form. Through price, hayek found the key to understanding human behavior. Although people cannot grasp all the knowledge, price is a good pointing tool.

Hayek thought: "Basically, the knowledge of the relevant facts in the hands of many people, the price can coordinate the different assumptions about human behavior alone... somewhere in the world have a way to use a new way of some raw materials (such as tin), or somewhere in the supply of tin has dried up, about what caused the shortage of relationship is not very big. (this is important) and tin users need to know is, tin has been used before, and now in other places to use more profitable, must now save use... is not only affected the use of tin, And tin alternatives as well as the use of substitutes. But those who provide most of the alternative, do not know the original cause of the these changes. All of these constitute a market, not because a certain market members must all understand for the market as a whole, but because each of them a limited vision fully overlap is enough to cover the entire market." What hayek meant was that this kind of decentralized knowledge, in which everyone pays attention to the part that is most important to him, would eventually effectively connect the whole market through price.

When it comes to prices, for example, the encryption market is small, currently less than $200 billion, and is generally regarded as a highly speculative market. However, every market has a price, and the formation of price hides a lot of inexhaustible knowledge, which conveys a lot of information and is the final result of the game of many factors. The encryption market is a world market, whose price depends on people's cognition of the encryption world and the demand for speculation. But in essence, both the fundamentals of the encryption world project and the demand for speculation are a kind of knowledge, which is formed based on a variety of different information.

However, all these information in the world no one can master all, such as some people are good at fundamental analysis, for the technical development of the currency, the volume of transactions on the chain, the number of active address, hash rate fundamentals are very familiar with, but he may buy COINS psychological needs of each area is not understand, such as Nigeria and South Africa's human into COINS? Why are people in venezuela and Argentina interested in bitcoin? How will Iran affect the price of bitcoin? Does the fed's quantitative easing have an impact on the price of bitcoin? What happens when bitcoin halves? What is the impact of Bakkt's bitcoin futures? What does the high USDT premium mean? . This knowledge is just the tip of the iceberg, and there are many possibilities for how this knowledge interacts with each other. Not only that, but it is also a 24-hour global market, with prices moving around the world and increasing awareness. Every cryptographic investor's individual decisions are based on changes in their prices. Whether through social media or we-media (WeChat, weibo, twitter, Google, etc.), or through market software, data analysis website, exchanges, etc., information and data are ultimately highly condensed into price.

Here, no one person or even an organization has all the knowledge and can form complete decisions. Price is not only the result of knowledge, it also has counteracting forces. Each person's judgment on the investment or speculation of project value varies, and where there is a difference, there is a transaction, and the price of the transaction in turn ACTS on the market, forming new knowledge. This knowledge develops and changes dynamically all the time. But people don't have to have all the knowledge to make decisions. They only care about the information that is most important to them.

So, is there anyone or any organisation in the world who thinks they are up to the task of making good economic decisions? The federal reserve is trying to do that, it's made up of experts, trying to counter incomplete knowledge with the smartest brains in the world.

The intellectual dilemma of the fed

In the modern system of monetary economics, the dollar operates on the basis of the credit system, which stimulates the economy through the policy of irregular quantitative easing. But the question here goes back to hayek's insight: can the federal reserve, as the policy-making body of monetary policy, have all the knowledge? Can it understand all the behaviors of people? Can it make perfect decisions? Do its decisions have unpredictable consequences?

For now, this monetary policy, while boosting the economy, has been accompanied by periodic crises that erupt when people's incomes fail to support their debts.

Why do central agencies fail to achieve optimal allocation of resources? It's important because they don't have all the social knowledge. Any central institution has a knowledge bottleneck that prevents all the best decisions from being made at a single point in time. This is the limitation of any individual or single institution.

In this complex system, because all the knowledge is not available, it is impossible to calculate an absolutely certain causal relationship. Hayek once said: "if we have all the relevant information, if we can start from a known preference system, if we have perfect knowledge, the rest is just a logical problem. That is to say... to solve this optimization problem must satisfy the conditions have been calculated, and can be expressed in mathematical form for the best."

Hayek made it clear that as long as people have complete knowledge, the answer will come naturally. Mr. Nakamoto has also said it is virtually impossible to determine the right rate of inflation. If you can't measure it, you can't manage it. Without adequate knowledge, you cannot provide adequate policies for the economy. Mr Nakamoto's thinking is similar to hayek's. If this is impossible, why not remove the human intervention of individual institutions?

At present, the dollar is driven by the credit system and continues to stimulate economic growth through quantitative easing, but this pattern of sustained inflation could not only create an economic crisis, but also lead to changes in the distribution of wealth. And this change, for ordinary people, is at a disadvantage. As can be seen from the chart below, the wealth of the top 0.1 percent and the bottom 90 percent in the United States had a clear advantage over each other from 1985 to 1989. However, since then, the total wealth of the top 0.1 percent continued to rise rapidly, while the total wealth of the bottom 90 percent continued to decline.

闲谈哈耶克、中本聪与比特币

The trend in the distribution of wealth in the United States since 1985. & have spent

One of the major causes of the polarization between the rich and the poor in the United States is its monetary policy based on the credit system. The rich have the opportunity to buy assets through borrowing and increase their value, while the poor are at a disadvantage in the inflationary credit system and can only afford to suffer the decline in purchasing power caused by dollar inflation. It's like creating new money, and if you divide it up, you're not going to have a big change in your relative purchasing power. The subtle change is that most of the new money goes to a small number of businesses and wealthy people, and over time you see a significant change in the proportion of chips that each person has, some with more and some with less. Even if everyone had an increase in chips (which is highly unlikely), the percentage increase would be different. In terms of purchasing power, some people enjoy the gains while others suffer the losses. The economic crisis and the misallocation of wealth were not the fed's original goal, but its natural knowledge limits prevented it from solving the problem.

Satoshi nakamoto's experiment with bitcoin's robust currency

As the introduction of the blue fox notes says, satoshi nakamoto built bitcoin largely to solve the above economic problems.

Bitcoin has obvious advantages in terms of currency properties. It has advantages over gold in terms of portability, divisibility, and transferability, etc. Besides, it mines mines through distributed nodes to ensure its security.

Aside from these underlying attributes, one of the most critical aspects of bitcoin's robust currency experiment is its "hardness." Its strength comes from the fact that there is a ceiling on the amount of money it can issue, and the plan is transparent. It has 21 million pieces, and its circulation halves roughly every four years until it is mined and issued in 2140.

If bitcoin is used as a measure of people's wealth, it will always be clear and transparent. No matter how many years later, 1btc is the same thing as 1btc, it's not going to depreciate. Over time, a dollar is never a dollar. As can be seen from the chart below, the depreciation trend of the dollar is continuing under the current credit system pattern.

(the purchasing power of the dollar continued to decline from 1980 to 2019, with the purchasing power of $100 in 1980 falling below $30 in 2019, according to Sylvain Saurel.)

If social wealth anchors bitcoin, even if it cannot become a unit of account, even if it becomes an anchor asset of the legal currency system, it can also become an important tool to measure wealth. Evolution well if the currency monetary experiment, if the currency use Numbers continue to increase, once it has stored value, medium of exchange function, there is a cap because of its total, and transaction records are not tampered with and transparent, this means that people in decision making, based on the knowledge such as prices, for example, to calculate the risks and rewards more clearly.

Ultimately, if bitcoin were to become a unit of account, then all economic activity, especially the flow of money, would become clear in real time as to what consumers want, how many goods producers offer, the size of demand for different goods, and so on. This extremely transparent system greatly reduces the cost of acquiring more knowledge and enables it to be sorted out more quickly through analytical systems in real time.

In this case, bitcoin is not only a monetary system, but also a system to record economic activities and price changes, which has the feature of real-time feedback, which can promote more efficient allocation of resources in the economy. This is getting closer to what hayek called the possibility of complete knowledge.

This is the story of the experiment with sound money, which Adam Tache had a very good time describing. "sound money equals scientific integrity: the system does not allow manipulation of the data after the experiment has occurred," he said.

Sound money itself has a fixed amount, so it cannot be artificially created or tampered with. Bitcoin is such an experiment in monetary policy that it is different from an inflationary credit system. It has a clear measure of the amount of economic activity, the amount of wealth. With this yardstick, the measurement of value and wealth becomes clear.

Why did satoshi nakamoto adopt the fixed cap rule in the first place? Of course, satoshi nakamoto also knew that fixed amounts would lead to speculation and bubbles. Once the number of users increases, the value of a single token will also increase due to the increase in demand. Due to the limited number, the demand will be in short supply, which will further drive up the price. The increase in price will attract more users' attention, thus driving more people to participate.

One of Mr Nakamoto's main reasons for adopting a fixed cap is that there is no better way, first of all in his view no one can act as the fed adjusts the money supply as its users grow. If there is a better way, Mr. Nakamoto hopes to programmatically write into the bitcoin blockchain.

conclusion

If bitcoin can evolve into a universal currency for humans, it will improve the efficiency of human cooperation and greatly reduce transaction costs. Of course, from today's point of view, there is too much idealism and wonder. But what if all the economic activity of individuals, businesses and organizations is recorded, or at least documented, in bitcoin ledgers? Then, bitcoin is the existence of superentity, through it can grasp the real price information, can immediately grasp the flow of social capital, can better make plans, better measure social value and wealth, to find the possible path to solve the economic crisis.