The Re-levance of B-Money

Introduction

The evolution of our civilization and especially in regard to our global economic systems was set a blaze in 2009 which marked the advent of a special new technology, bitcoin, an invention that we cannot yet hope or expect to understand. The inventor or inventors remains anonymous today and so there is very little literature in regard to the actual relevant and recent historical underpinnings to the creation of bitcoin. However, for the last 20 years years Nick Szabo has been been creating a collection of tutorials in the form of a blog that explain exactly that. Szabo seems to give us not only clear details into both the philosophical and economical explanations of bitcoin but also the technological and historical relevance to its creation. In relation to that blog, and with the help of a few other philosophers of the science of evolution, game theory, and global economics, I would like to point out the first citation on bitcoin’s white-paper, bitcoin.pdf, might be more relevant to the overall goals of the project, and the future of our civilization, than has been previously discussed. I will write this essay in a shorter form than the topic deserves yet I may expand on it, add new articles to it, or possibly re-write the idea presented here completely in the future with far more details and relevant citations I have found. For now I would like to briefly address an overview of the relevance of a special article called “b-money” in the hopes that it might spark new ideas from myself and others in regard to the evolution of our society.

John Nash

We start with a small introduction of some of the works by John Nash, which are both intriguing and mysterious, while at the same time containing one of the most cited discoveries of all time-the Nash Equilibrium. In order to be concise we simply need to understand the Nash Equilibrium as a solution for a type of game (finite) that proves a strategy will always exist in which neither player can unilaterally deviate to gain. This solution dramatically changed our understanding of essentially all sciences, albeit nearly 40 years later as the ramifications were not realized until far later into Nash’s life. One of the fields that the NE had a significant impact on is evolutionary biology which we will delve into further in the next section on Richard Dawkin’s works.

The NE was actually only one of many significant discoveries and works that Nash created in the 1950’s. The Bargaining Problem is another important piece to this essay as well as our general understanding of how money works and its role in economics and trade. By comparing a simply barter problem which doesn’t include money, to an equal situation in which the traders DO have access to money, Nash was able to show the value of money in trade. Because of the option of a transferable utility, the participants in the barter situation are further able to optimize the value of their negotiations. This leads to the possibility of mutually favorable gain that could not otherwise be realized without the introduction of a money. Although this paper also had significant effects on our understanding of economics, I will point out later in this essay that there is a hidden assumption in the conception of the problem and its solution that might allow it to be generalized further.

Nash also has two relevant “letters” that I would like to mention. First is a letter to the NSA involving a very special conjecture. Nash explains in this letters that, allow he cannot “prove” it, he expects the conjecture, that encryption should exponentially out pace decryption, will hold true.

Now my general conjecture is as follows: For almost all sufficiently complex types of enciphering, especially where the instructions give by different portions of the key interact complexly with each other in the determination of their ultimate effects on the enciphering, the mean key computation length increases exponentially with the length of the key, or in other words, with the information context of they key.
The significance of this general conjecture, assuming its truth, is easy to see. It means that it is quite feasible to design ciphers that are effectively unbreakable.  As ciphers become more sophisticated the game of cipher breaking by skilled teams, etc., should become a thing of the past.
The nature of this conjecture is such that I cannot prove it, even for a special type of cipher.  Nor do I expect it to be proven.  But this does not destroy its significant.~Nash Letter to NSA

This in itself, and in his words, has an incredible significance, although seemingly Nash was not able to convey this significance well since the NSA seemed disinterested in his excitement.

The other paper I wish to levate for its relevance is a memorandum to Rand called “Parallel Control”. In it Nash records what he essentially refers to as loose thoughts for what might basically be understood to be the archaic designs behind an AI system. The idea he says is “… to decentralize control with several different control units capable of directing various simultaneous operations and interrelating them when appropriate.”

This architecture Nash explains and alludes to, as well as the encryption/decryption conjecture, are realizations that could not be understood by the general masses until at least the advent of bitcoin. Furthermore it is relevant to point out that we have not yet realized the technology described by Nash in the 1950’s when he was still a young man.

The last 20 or so years of Nash’s life he spent time giving lectures on the topic of IDEAL Money and how it might be brought about. Much has been written on this lecture series and I will return to this subject at a later point. The concept is also from his earlier younger time period.

Dawkins and The Selfish Gene

The NE is the crux of the argument (really its more of a lesson) that Richard Dawkins presents to us in his works “The Selfish Gene”. Nick Szabo is a big proponent of this works which is cited in his essay “Shelling Out: The Origins of Money” in which Szabo gives his argument for a different perspective on how money might arise (Szabo goes into this in more detail on his blog as well which I will attempt to highlight in a later section of this essay).

The basic premise of Dawkins is that evolution only really happens when stable equilibria are achieved. In regard to genetic evolution, Dawkins point out it is not the gene’s that evolve per se, but rather the biological machines that arise as a result of the stable equilibrium that “strong” genes provide. As evolution on a higher level provides the growth needed to overcome certain “population” problems, the need for gene evolution is reduced. It is the genes that DON’T evolve that are the “strong ones”, and this provides a stable platform of evolution on a different level. We might understand this, in regard to human civilization, as technology provides us a means to “evolve” while consequently our biological NEED to evolve diminishes.

The fundamental principle involved is called negative feedback, of which there are various different forms. In general what happens is this. The ‘purpose machine’, the machine or thing that behaves as if it had a conscious purpose, is equipped with some kind of measuring device which measures the discrepancy between the current state of things, and the ‘desired’ state. It is built in such a way that the larger this discrepancy is, the harder the machine works.

In regard to game theory and its relevance to bitcoin I dare say that it is Dawkins, even more so than Nash, that provides the literature needed to understand the mechanisms and protocol involved . The basic understanding here is that it is the NE equilibrium that provides this ultra-stability needed for evolution on a higher plane. If a gene-pool is not locked in such an equilibrium then it can be shown such a state is not stable and we might expect that eventually it gets corrupted.

…individuals are not stable things, they are fleeting. Chromosomes too are shuffled into oblivion, like hands of cards soon after they are dealt. But the cards themselves survive the shuffling. The cards are the genes. The genes are not destroyed by crossing-over, they merely change partners and march on.

It can be pointed out though that Dawkins might not have fully encapsulated the extent of his realization. There seems to be a higher level generalization we might have access to here that allows us to traverse different dimensional planes in exploring the evolution of the cosmos and all that is in it. Szabo hints at this in his essay Transportation, Divergence, and the Industrial Revolution where he extends Adam Smith‘s works “The Wealth of Nations” to our understanding of emerging computer science and specifically the evolution of networks and software.

Metcalfe’s Law states that a value of a network is proportional to the square of the number of its nodes.  In an area where good soils, mines, and forests are randomly distributed, the number of nodes valuable to an industrial economy is proportional to the area encompassed.  The number of such nodes that can be economically accessed is an inverse square of the cost per mile of transportation.  Combine this  with Metcalfe’s Law and we reach a dramatic but solid mathematical conclusion: the potential value of a land transportation network is the inverse fourth power of the cost of that transportation. A reduction in transportation costs in a trade network by a factor of two increases the potential value of that network by a factor of sixteen. While a power of exactly 4.0 will usually be too high, due to redundancies, this does show how the cost of transportation can have a radical nonlinear impact on the value of the trade networks it enables.  This formalizes Adam Smith’s observations: the division of labor (and thus value of an economy) increases with the extent of the market, and the extent of the market is heavily influenced by transportation costs (as he extensively discussed in his Wealth of Nations).

To understand this, we might refer to what I see as the most simplest model we might have available that is relevant to the perspective that we as humans view our existence “The Fundamental Causes of a Wealth Nation“. Although extremely simplistic, and probably too much so to gain any attention, the understanding that on a 2-d plane we might be able to model the simplest equilibrium, might turn out to be something we can generalize to higher level orders of perspective. That is to say we might learn how to better understand how evolution moved from the ancient oceans of this planet to land (where gravity, oxygen, and space or land scarcity play a different or “evolved” role), and also how man might also learn to evolve through software and the exploration of space (each of which has its own dimensional ramifications). Again Szabo’s works, especially as an extension of Adam’s Smith, becomes relevant which we will return to in a later section.

FA Hayek

Another significantly undervalued and under-praised man and his works is F A Hayek. Hayek’s work “The Use of Knowledge in Society” goes into great detail explaining the importance of the markets and he gives an explanation as to why it is only the markets and never any subset of individuals that might properly valuate our commodities.

…the sort of knowledge with which I have been concerned is knowledge of the kind which by its nature cannot enter into statistics and therefore cannot be conveyed to any central authority in statistical form. The statistics which such a central authority would have to use would have to be arrived at precisely by abstracting from minor differences between the things, by lumping together, as resources of one kind, items which differ as regards location, quality, and other particulars, in a way which may be very significant for the specific decision. It follows from this that central planning based on statistical information by its nature cannot take direct account of these circumstances of time and place and that the central planner will have to find some way or other in which the decisions depending on them can be left to the “man on the spot.”~Hayek, The Use of Knowledge in Society

In “The Fatal Conceit” Hayek further expands on this explaining that the great folly of socialism is to think that there could possibly be a central planner, group of people, or a mechanism that might optimally determine the use of commodities. This is an incredibly significant argument, one that Szabo re-iterates very well throughout his vast works. Hayek comes from the Austrian school of economics, which, often at odds with traditional western schools, inherited its perspective from being on the “other side” of the war-one which saw direct and devastating effects of supporting such socialistic policies. The mistaken belief that commodity valuation could be centrally planned, in Hayek’s view, is a doom sentence for the society that espouses it. Furthermore Nash, Hayek, and Szabo all seem to believe that “Keynesian” practices of inflation targeting also intrinsically inherit this unfavorable axiom (Nash especially explains the difficulty dissolving this malpractice).

There is another significant point that Hayek discusses, quite in depth in regard to the individuals’ understanding of society and how it works versus the actual institutions and systems that have arisen to allow society to function. Society poses a complex problem and the solution to such a complex problem, Hayek argues, is not accessible to the individual because of the very nature of the complexity. So the individual is left with the necessity of subscribing to systems and institutions that have necessarily evolved, yet the individual does not, and can not, expect to understand them.

Many of the evolved rules which secured greater cooperation and prosperity for the extended order may have differed utterly from anything that could have been anticipated, and might even seem repugnant to someone or other, earlier or later in the evolution of that order. In the extended order, the circumstances determining what each must do to achieve his own ends include, conspicuously, unknown decisions of many other unknown people about what means to use for their own purposes. Hence, at no moment in the process could individuals have designed, according to their purposes, the functions of the rules that gradually did form the order; and only later, and imperfectly and retrospectively, have we been able to begin to explain these formations in principle (see Hayek, 1967, essays 1 and 2)~Hayek, The Fatal Conceit

We can understand the individuals’ view in this regard, as a type of religion, like a set of simple rules that allow one to always or often choose the correct answer or approach, but without having to understand or memorize the whole strategy set. This allows society, as a large collective of individuals, to function in favorable ways, even though each individual doesn’t understand exactly why they are functioning within such guidelines. Money seems to be some form of a physical manifestation of this concept. Moreover, in this, we might understand this distinction as the difference between science and religion, both being useful and relevant from their own perspectives. It is relationships like this and the effects of perspective I wish to highlight as relevant here.

Nick Szabo

There is much to be said about Nick Szabo, but for expediency I would rather like to only highlight a few relevant blog posts that readers of this essay might find relevant. Szabo gives a few metaphorical examples of different currency situations that might arise and how rational markets would optimally invest in them. His examples explain an important concept for this paper, that in certain situations a single currency standard should be expected to arise, whereas in a different setting we should expect, and even favor, a market economy with multiple currencies.

His realization is that it is the mental accounting barrier associated with free-floating currencies, that causes us to naturally converge towards a system with a single standard with which we might base our entire economic system on. Without this barrier, however, we might expect the optimal outcome to include many currencies with no reason (or force) to settle on a single standard.

This is an incredible point to make, probably obvious to Szabo’s followers, because Szabo also gives the design for a machine called a “market translator”, which happens to reside on top of the bitcoin architecture, and plays the exact role of removing the mental accounting barrier of negotiating currency exchange.

We might find different levels of understanding this, but in relation to all of the above written so far, we can see that Szabo has simply provided some higher form of money which provides a more granulated solution to society’s complex barter problem. This in itself has obvious ramifications I will return to this in the conclusion.

In regard to Dawkins works, and people that wonder whether or not bitcoin would survive an onslaught of ever evolving currencies, we might understand that bitcoin COULD act like the stable gene’s that themselves prove their value from NOT evolving, while the architecture built on “top” of bitcoin becomes the highly adaption technology that solves higher level problems we could not expect to even be previously aware of (although seemingly some people were).

In regard to Nash’s works Ideal Money, and much of what Szabo’s blog discusses, we can really begin to understand a theoretically perfect standard of money-money that has a stable purchasing power over time, which is seen as being related to some theoretically optimal standard set of commodity prices. Again this would be where Hayek would point out you could not possibly target this standard from a central authority, and doing so would be fatal (this is how most National fiat currencies work today).

The fruitless attempt to render a situation just whose outcome, by its nature, cannot be determined by what anyone does or can know, only damages the functioning of the process itself.~Hayek, The Fatal Conceit

Nash alludes to the ever favorably evolving standard of money asymptotically approaching this limit. Szabo seems to philosophize about this further albeit in a somewhat tangential fashion to Nash.

The relevant point between Szabo, Nash, Hayek, and Szabo is that as we approach certain stable equilibria in our currency technology we should then expect to turn to high order solutions. It is not the cause I wish to point to here, but rather the relationship.

Games

Much can be said on the subject of games and game theory that is significant and relevant to this essay but I will strive to stay direct and to the point as possible. The importance of games has long been studied because of their use as a relevant model for different situations, systems, and institutions, that we face in our attempts at solving society’s great problem of coherent function. As we solve games and raise our understanding of them our understanding of society and our evolution grows.

We already noted that in a NE, which is ultimately toted as the “solution” for a given game, there is a stable equilibrium in which neither player can UNILATERALLY gain. This means that without some form of cooperation there can not be change in strategies between rational players, since the opponent will naturally gain from such deviation. Altruism cannot come into play here when looking for STABLE equilibria since it could always be that a player might “defect” whether “consciously” or accidentally (accident here refers to natural evolution and so is quite relevant).

But even Dawkins suggests the power of the human intellect should still be expected to evolve beyond current equilibria that were set in place solely by natural evolution. Put an other way, using a higher order such as “logic”, we could expect to move beyond previously observed limitations, much like the introduction of a currency in an otherwise stable bargaining situation. In fact, it is money, Nash remarks, that changes the game from one of zero sum to one in which there might be mutual (co-operative) gain. Dawkins and Szabo, in their own way, also re-iterate this point and its importance.

There is a significant point here I have not yet seen expressed. It might be that with the introduction of higher order technology (which all evolution essentially is) that the previous underlying “game” and its NE might be altered in such a way that the old NE no longer exists or is relevant. My basic point is that traditional and archaic NE’s that have existed for a relatively long time (perhaps the written history of man) might then shift or evolve in an unexpected or unforeseen way. We find relevance now in “The Fundamental Causes of a Wealth Nation” in that such a dissolution might be represented as a border change. With the advent of higher order evolution there might be, for example, radical unforeseen geopolitical shift, changing borders that might have stood for even thousands of years.

A game is indeed a clear instance of a process wherein obedience to common rules by elements pursuing different and even conflicting purposes results in overall order. Modern game theory has, moreover, shown that while some games lead to the gains of one side being evenly balanced by the gains of the other, other games may produce overall net gain.

The growth of the extended structure of interaction was made possible by the individual’s entry into the latter sorts of game, ones leading to overall increase of productivity.~Hayek, The Fatal Conceit

To further expand on this I would like to extend our understanding of games. We think of games in their limited view, for example if we enter a casino and sit down at a poker table. We take the rules situation for granted, in that there is a mutual agreement on them and the enforcers of them (often a conglomerate of players, the dealer, and perhaps the floor manager etc.). But of course these rules really are pliable in a few certain senses. First there are always security leaks in their enforcement, or in other words there will seemingly always be room for cheaters. Also, as silly as it sounds, there is room for the individual to refuse to play by the rules, although probably not without consequences.

Rules in this sense, come from a form of propriety, in that they are enforced by the participants in the society, or by some relevant subset of it. If society breaks down, so should we expect that these rules would break down. Therefore, although in a game, as a metaphor (religious) for higher level problems, we tend to understand these rules as unshakable and finite, we should be cautious to not misapply this axiom to our understanding of the real world problems we might apply our insights to.

Rules in this regard are comparable to shared protocol, and I think it could be shown, that games might be viewed from different perspectives and with different limiting factors. The nature of poker, for example, is such that the value of a players chips fluctuates in relation to the overall average ability of the relevant field. One’s chips have a higher expectation in a field with weaker players than stronger ones. This is a type of money involved in a type of problem that is slightly different but comparable to a bargaining problem with money of not ideal quality.

When different poker rooms online make unfavorable changes to the quality of chips, it is the players themselves that begin to migrate to sites of superior quality offerings. Since players lack the information needing to accurately asses the value of their chips on each site, it could be theorized there might also be a higher level solution that could facilitate this “want”. Then we have the same possibility for the disruption of an already realized market equilibrium in regard to the exchange of money for chips on any given site. The small point here is that “population” and migration viewed from a different perspective is really comparable in a different way then we traditional view the individual player’s role in the market economy (as if the players are enacting Gresham’s law and taking on the role of money in that regard). Another way of saying this is migration might be seen as the effect of a “rule” change in the form of geopolitical destabilization.

I point this out to give us a possible insight into the “usefulness” of war. By usefulness here we should think of a metaphorical implementation of the word without meaning to be a proponent of violence. If all of the relevant world systems are in equilibrium, yet there is some expanding need for a solution to an otherwise unsolvable problem (ie lack of a certain significant resources), the only solution might be to turn to humans as a market solution. Slamming bodies into each might seem unproductive, but on the other hand war has been responsible in the past for many of the most important technological discoveries and advancements of their time.

We can think about two nations that are engaged in constant sea war-fare battles, ever improving their ships, fighting over scarce but much needed resources, only to eventually use the evolving sea-ships to discover a new bountiful land. This alone cannot be expected to perfectly and naturally bring peace to such warring tribes but it shouldn’t be hard to envision how this might change the nature of the war game between the two parties (and the psychology of the people from a different perspective).

Relevant Thoughts On Markets

Perhaps it might have been better to give a basic introductions to markets at the beginning of this essay, however, it may have been impossible to do so in a basic but also relevant fashion. Nonetheless, even if we are new to the concept and usefulness of markets we might begin to see their usefulness already. It is the markets, and only the markets, Hayek points out that could be used to optimize the distribution of commodities by accurately pricing them through exchange.

In this sense barter is the ongoing negotiation in which if you won’t pay a price for a commodity some else will, unless that commodity is overpriced, in which some competitor will naturally offer that commodity at a more favorable price to the buyer. The concept itself is thought of in an ideal setting, in that we might not expect the world to work like this, however, and more importantly, using the markets as our distribution mechanism is in the opposite direction of the traditional centralized design. We should expect one is good and the other is bad (very bad).

The moment that barter is replaced by indirect exchange mediated by money, ready intelligibility ceases and abstract interpersonal processes begin that far transcend even the most enlightened individual perception.~Hayek, The Fatal Conceit

Many problems can be solved with the introduction of a market mechanism, and it is often or essentially money that allows for such a system to exist. The more granular the mechanism the more optimal its solutions might be. It’s important to note that these solutions need only be as granular as needed to solve some defined scope of a problem-sufficiently granular is sufficient.

That a mere change of hands should lead to a gain in value to all participants, that it need not mean gain to one at the expense of the others (or what has come to be called exploitation), was and is nonetheless intuitively difficult to grasp.~Hayek, The Fatal Conceit

Is One or Multiple Currencies Optimal?

Here we return to Szabo’s thoughts on the relationship between a single currency standard that might arise versus an economy that safely and comfortably subscribes to many different currencies. We can think of this in relation to what Nash defines as Ideal Money, and asymptotically Ideal Money, which is money that approaches an optimal standard in relation to an optimal set of commodity prices over time. As money evolves favorably we should expect the surviving currencies to also approach this standard, and if there is to be any such currency that is optimal in this respect it should be the sole surviving species.

But this doesn’t take into account a possible solution to our current day floating currency mental transaction problem. In such a world, I think even Nash would admit, contracts involving deprecating currencies could account for such change. We might imagine the lack of a “need” for a single currency standard and see the possibility of many different types of useful currencies.

What is Robust?

Which of the two possibilities should we favor? Without specifically (yet) alluding to a certain outcome, it could be pointed out any favorable system should be sufficiently robust. The purpose of our money systems is to facilitate the global security for survival and liberty our economy provides. It would be counterproductive to hinge this economy on a money system that is not stable. Then we should want the most robust and secure system for money possible. It seems then it might be that a money system capable of fluctuating between a single standard OR multiple currencies might be most favorable. Or it might be that Nash’s view of having an “Ideal Money” if it is all in contrast to Szabo, is really just a different order of perspective. In this view, Nash’s Ideal Money would be like the ever stable gene’s Darwin describes, that the highly adaptable biological vehicles reside on. For followers of the bitcoin movement this probably refers to Ethereum.

Conclusion: The Re-levance of B-Money

All of these points, although interesting enough, may not have seemed to be presented in a coherent or useful manner, but as we can see different perspectives of different orders can have a dramatic effect on our understanding of different problems we define and wish to solve. B-Money is a seemingly innocent attempt by an author known as Wei Dai, that we might find insight in from one such perspective.

Dai proposes the creation of “b-money” by nodes, which announce their creation of units of a currency based on a theoretical notion of a standard currency unit (much like we might expect to have in the world of Nash and Szabo). This paper was cited first on the bitcoin white-paper which, as the story goes, Adam Back pointed Satoshi to. But the solution proposed by Dai was not a complete implementation-it turns out a p2p algorithm that enforces a finite supply of currency, and protects itself with propriety, became the ultimate insight that was bitcoin.

However, the purpose of this writing is to suggest we have not fully appreciated dai’s b-money paper. In order to understand this insight we must think of a world with the possibility of multiple currencies because of Szabo’s market translator, which asymptotically limits the mental barrier transaction (or perhaps if it doesn’t there might be emerging technology on top of that which does). We must also think about a different perspective than what dai painted, rather we might think about nodes not necessary as the p2p infrastructure, but rather the underlying individuals themselves.

In such a world the individual could print their own currency, which is well supported by the current infrastructure. The “honesty” of the value of this currency is well taken care of by the theoretical market translator, so there is not the same problem of Keynesian style inflation by the issuer.

It seems like a small point to make but this allows the possibility for each individual to not only naturally inherit their own valuable (to the issuer) transferable utility as if this technology would become a natural right, but also arises the possibility of identification through what might be described as each persons personal block-chain (again thinking from a slightly different perspective than how bitcoin’s block-chain is relevant today). This is as if we have described an implementation to a software version of DNA. This would provide a much needed bridge that could help solve the problem of a decentralized ID system.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s