Mad [Bitcoin] Max{imalism} : Insights into a Scarcity Landscape
By: Jon Gulson
Tags: Economics, Bitcoin

Banks — like any other social institution — are an extension of the people they serve. This means unless they stay relevant, they’re usurped.

The complexities [of banking] are too much to cover in this blog; but we can broadly understand Banks in their remit of trust and for which most of the time, works fine.

Money acts as social lubrication, being a transaction medium in daily lives [which] assumes deep psychological significance — Banks are trusted with maintaining confidence, order and stability to allow peace and [hopefully] prosperity.

So when a new technology comes along which appears to challenge the existing order, it creates all sorts of reactions in identifying threats and opportunities.

The {Au}gmentation of Money Creation

“The long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again.” John Maynard Keynes, Tract of Monetary Reform (1923)

Commercial banks create money ex nihilo and Central Banks manage that creation through the [inflation] targeting of a Consumer Price Index trend. The purpose of this is to ensure optimal money so there is enough in times of growth and less in downturns.

This makes such money elastic: it expands and contracts as the economy is measured and observed. The question then arises which trend observation is itself optimal? Keynes’ reflection in our long term reality was an expression of exasperation around equilibrium.

And in this regard several trends have been used; a gold standard, the Bretton Woods agreement, exchange rate management and inflation targeting.

Scarcity and Equilibrium in Digital Markets

The digital economy differs from the world seen by Adam Smith, who was the godfather of understanding economic welfare in non-cooperative scenarios: that goods are ‘rival’ and therefore create an opportunity cost.

The information as commodity age was unforeseen by Smith; for example, when you wear the pants; literally — it means someone else, can’t — but today [on the internet], everyone can try them; figuratively.

Smith was re-orientated in the new markets by game theory based economics, which parallels the power of the internet in delivering value to an infinite number of consumers. Just as Smith observed in his time, the new markets could now also be [observed] as creating welfare or cohesion from self-acting agents.

And with the new technologies and increasing productivity efficiencies, it meant the age old problem of scarcity could be seen as on the verge of resolution; especially with new forms of money reflecting the new technology trends.

This observer tweets:

Time out of Mind

Bitcoin has the potential to augment the quality of state managed money issuance, if Central Banks adopt.

In the way game theory re-orientated Adam Smith, we can understand how Central Banks become subject to the same technological effects of the new money — and which makes [Central Banks] exploitable (or gameable) as markets strive for equilibrium.

Keynes proposed at Bretton Woods (1946) the bancor — a supranational money — but like Adam Smith, didn’t foresee the information as a commodity [age] where outcomes optimise on ever more responsive behaviour: Keynes was reliant on altruism of the nations to take his idea up.

Maximum Madness

Contrary to this are the Bitcoin Maximalists who see Bitcoin along more ideological lines of being money outside of the legacy banking system — that [Bitcoin] was born in centralised sin [and has been repenting ever since], is an inflation resistant, anti-fiat, censor proof, sound money, with innate security and privacy protocols to protect [its] users from state and government coercion.

Mel Gibson as Mad Max

The Maximalist puts a premium on the scarce nature of Bitcoins, rather than seeing them as a predictable and asymptotic trend; expressing an eager will to rip up generations of evolved monetary theory, which has served relatively well.

The Maximalist approach becomes unclear in understanding how their reality comes into play? It understands Bitcoin as consumer level money, rather than higher level money — but doesn’t understand the problem of Bitcoin’s inelasticity in this regard. It’s also apparent they are shoehorning a narrative into reality, which won’t fit — and which they appear not to properly understand.

And if our institutions are extensions of the people they serve, what protections or rights does the populace have in the event of disputes — or when things going wrong; for example, lost or stolen private keys? It sounds like everyman would be for himself in some kind of Szabo thought experiment.

The following tweets give a flavour of this type of thing:

The last tweet Pierre Rochard differentiates between Bitcoin and fiat; not understanding that Bitcoin is a fiat money. Final tweets of sanity from Chris DeRose:

It’s inevitable Central Banks will adopt Bitcoin as a new value trend— they are an extension of the people, whose lives have been revolutionised by technology. The Banks have to stay relevant in this light.