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Beyond 21 Million #BitCoin

Published last month in Info Tech , Philosophy , Politics , Technology - 0 Comments
bitcoin monetary policy

Value in the real world is a derivative or personal value. We don’t care about what we don’t care about until we care about it. And that which we DO care about, well, we care.

Trying to understand the valuation model of BitCoin is like trying to understand how to grow food on Mars. Just as we have no real way of knowing how to grow food on Mars until we start trying to do it, we have no real metaphor to understand what the real value of BitCoin actually is until we start using it. We have theory of how it can be done. But when the theory meets the practical, is when the rubber meets the road and we find out the real power of the engine.

Monetary Policy that Matters

The reality is, in the current record of human history, we have no model to correlate to the technology underpinning BitCoin, as a way to have reference for what is possible with the technology.

The closest reference model we have is the Internet Protocol, more affectionately known as “the web”. That is to say, the technology underlying BitCoin is itself a network protocol. These types of protocols, at their most basic level, govern communication between two or more nodes in the network. In simple terms, a node is any device that has the capacity to connect to the network, and transmit and/or receive data.

The Internet Protocol governs this web page displaying on your device.

The BitCoin Protocol governs the generation, dissemination, and transaction of bits (BitCoins) between nodes on the network. It is the consensus rules defined in the protocol that establishes the basic nature of BitCoin.

Understanding the consensus rules is the beginning of being able to understand the monetary policy guiding the dynamics that will shape the future of this planet. Make no mistake about it, this technology is disruptive. And its here to stay.

It’s disruptive by the singular fact that there is no single authority governing the monetary policy of the network. Rather, it is the consensus rules governing the monetary policy of the network.

Contemplate that for a moment. If you are struggling to understand why BitCoin has become what it has become, the distinction above is critical to understand. It determines the significance of why this monetary policy matters.

–> Keyword Searchphrase: “BitCoin Consensus Rules”

The Intrinsic Value of BitCoin

One model that is often used to try to understand this new form of currency is the gold standard. And when discussing the gold standard, as distinct from fiat models, the notion of “intrinsic value” must be contemplated.

The correlation between BitCoin’s model, and the gold standard, is that they are both deflationary. They become more expensive to mine the more they are mined, such that there is a finite supply.

Inflationary models, such as fiat currency, have an infinite cap. Quantitative Easings 1, 2, and 3┬áin the United States from 2008 to 2012 are examples of what’s possible with inflationary models.

Another example of what’s possible with inflationary models is in Zimbabwe from the 90’s up to around 2008, when “…Zimbabwe’s peak month of inflation is estimated at 79.6 billion percent in mid-November 2008”.

With inflationary fiat models, there is no intrinsic value. The trust in the currency is the emotional confidence held by those who use the currency. Without that confidence, the currency collapses. As was the case with the hyperinflation in Zimbabwe.

Trust with fiat models is based in the central authority’s guarantee on “good faith and credit” that the currency is a stable mechanism by which all debt, public and private, can be leveraged. If the United States government is not able to hold the guarantee of the US Dollar, it cannot then be used as leverage to move assets and resolve debts, public or private. The same is true for any fiat currency.

With deflationary models, however, it is the intrinsic value of the finite asset that is the guarantee of the contract. Aside from the fact that its pretty, gold has industrial uses. As an example, it’s in many of today’s electronics, as it’s a conductor of electricity and has high capacity for corrosion resistance.

When it comes to the intrinsic value of BitCoin, the discussion becomes much more vague. After all, what can you do with bits in a computer?

As I define it, the value inherent to BitCoin is surmised by the fact that the protocol is open to any participant, and available beyond the confines of any one particular bordered nation-state. That is to say, the protocol itself allows for a means of interaction in such a way that the participants on the network derive the utility of the what’s possible with the network, so long as the consensus rules are maintained. And the rules are maintained by those who choose to participate. The intrinsic value feeds itself by participation in a context of consent.

The consensus is open to participation, and also non-participation. It is the first viable mechanism that transcends the need for conflict as a basis of innovation. War is no longer justified as a profit motive to innovate the advancement of society. Consent is the profit motive, literally!

Only by playing by the rules of consent can you participate in the network. And by transparent recognition, only those who follow the consensus rules are allowed to be active in securing the viability of the network.

In other words, it is the active participation in the network, by users, that is the intrinsic value of the currency itself. The participants are the inherent value due to the fact that participation is consensual. Intrinsic value is one layer removed from being a concrete asset, and is derived by a social contract that levels the playing field for all participants.

Anyone with the capacity to inform themselves of the rules of consent can play the game. No one grants the privilege. No one revokes it.

You are your own economic agent governing your capacity to transact value via the network.

Never before in our current epoch of history has this been possible on a global scale. Take a moment to allow the implications of this to feed your imagination of “what’s possible”. Give yourself this opportunity to imagine a world without fear and skepticism clouding your view.

It is your active participation in a network of consent that determines the viability of a robust network governed by the specific set rules. This form of anarchy is not without rules, it is without ruler. This is a distinction that you must take the time to disambiguate in your mind if you wish to see the full potential of this technology come about, for the benefit of all.

21 Million and Beyond

The projected date of the last BitCoin to be mined is 2140. By year 2036, 99% of all BitCoin will be mined. The reward for mining is a logarithmic decay scale such that there was rapid generation of BitCoin initially, and its halved every four years creating an ever decreasing supply of BitCoin.

The reward for mining after 21 million no longer applies. However, transaction fees do. The argument is that transaction fees won’t be sufficient enough to maintain the network because there’s no reward for miners to continue processing transactions.

Keeping in mind that consensus is the profit motive driving innovation. And through open participation in one of the world’s most sophisticated super computers, the BitCoin network has generated a cryptographically secure distributed ledger, providing open access for anyone to be an active participant in a global, consent based market. The need to drive innovation of sustainable energy grids becomes and economic profit motive. If the greatest cost to continue the network is the electricity used to power the computers, the world now has an direct economic reason to drive innovation of sustainable power.

Beyond 21 million BitCoins is a future for our grandchildren to handle. That future is a future made possible by active participation in a robust network of consensus. As the supply decreases, and demand for BitCoin rises, the valuation of BitCoin itself will unfold in its due course.

The only way to gain an understanding of the potential future value of a single BitCoin, is by being an active participant in the network. Those who don’t wish to play the game of consensus are free to not play. This is the nature of consent. You are not forced to play the game. But please understand, your participation is highly valued and very much welcomed.

If you’ve found value in this article, and it has helped to generate insight in your understanding of this technology, please share it to your favorite social network.

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