Mathematically Defined Crypto-Currencies
There has been a lot of attention on BitCoin of late, and a number of my correspondents have been digging into the topic.
I was looking for some good analogies through which to understand the idea and the dynamics of BitCoin and similar mathematically defined crypto-currencies. This is my first shot at constructing such an analogy.
In this model, I think of the economy (the exchange of goods and services) to be an intricate clockwork mechanism. Everything is connected to everything else. Energy flows through the gears, allowing the machinery to operate at some level of speed and efficiency to move things along.
Any economy, like any clockwork mechanism, has friction. Energy needs to be supplied to overcome the friction, and that energy eventually degrades to heat as the state of the clockwork mechanism evolves over time.
One can improve the efficiency of the machine by applying a high quality lubricant. With a good lubricant, there is less friction, and less energy is needed to drive the machine.
In an economy, money is the lubricant that allows the machinery of commerce to operate efficiently. That’s the function of money: to act as a lubricant for the gears of the economy.
Suppose an inventor devises a super-lubricant that outperforms all current lubrication technologies. What happens? In an ideal world, everyone upgrades to the new lubricant and it soon takes a lot less energy to keep the clockwork machine running smoothly.
What could possibly go wrong?
The problem is that manufacturing the new lubricant is not free. Just as it takes energy to overcome friction, it also takes time and energy to manufacture the super-lubricant. And so there ensues a “gold rush” to manufacture this wonderful new super-lubricant.
Eventually, those who got in the game early end up owning barrels and barrels of this valuable super-lubricant. The problem is, they are not using it to lubricate the mechanism. Rather they are hoarding it because its market value is rising. As a result there is a shortage of lubricant in the clockwork mechanism. The material economy is not yet benefiting from the new super-lubricant because very little of it is being released into the gears of the machine. Most of it is simply being hoarded in privately owned barrels whose value on paper is rising.
But if and when all that hoarded lubricant is released into the clockwork machinery of the real economy, two interesting things will happen. The real economy will operate more efficiently (and that’s a good thing) while the price (or value) of the (now increasingly abundant) super-lubricant will drop. When that happens, the late-comers to the gold rush game will find that they unwisely spent a lot of resources in vain to manufacture or purchase small amounts of the once scarce lubricant that has now become cheap and plentiful.
Does this analogy work? How can it be refined or improved?
I was looking for some good analogies through which to understand the idea and the dynamics of BitCoin and similar mathematically defined crypto-currencies. This is my first shot at constructing such an analogy.
In this model, I think of the economy (the exchange of goods and services) to be an intricate clockwork mechanism. Everything is connected to everything else. Energy flows through the gears, allowing the machinery to operate at some level of speed and efficiency to move things along.
Any economy, like any clockwork mechanism, has friction. Energy needs to be supplied to overcome the friction, and that energy eventually degrades to heat as the state of the clockwork mechanism evolves over time.
One can improve the efficiency of the machine by applying a high quality lubricant. With a good lubricant, there is less friction, and less energy is needed to drive the machine.
In an economy, money is the lubricant that allows the machinery of commerce to operate efficiently. That’s the function of money: to act as a lubricant for the gears of the economy.
Suppose an inventor devises a super-lubricant that outperforms all current lubrication technologies. What happens? In an ideal world, everyone upgrades to the new lubricant and it soon takes a lot less energy to keep the clockwork machine running smoothly.
What could possibly go wrong?
The problem is that manufacturing the new lubricant is not free. Just as it takes energy to overcome friction, it also takes time and energy to manufacture the super-lubricant. And so there ensues a “gold rush” to manufacture this wonderful new super-lubricant.
Eventually, those who got in the game early end up owning barrels and barrels of this valuable super-lubricant. The problem is, they are not using it to lubricate the mechanism. Rather they are hoarding it because its market value is rising. As a result there is a shortage of lubricant in the clockwork mechanism. The material economy is not yet benefiting from the new super-lubricant because very little of it is being released into the gears of the machine. Most of it is simply being hoarded in privately owned barrels whose value on paper is rising.
But if and when all that hoarded lubricant is released into the clockwork machinery of the real economy, two interesting things will happen. The real economy will operate more efficiently (and that’s a good thing) while the price (or value) of the (now increasingly abundant) super-lubricant will drop. When that happens, the late-comers to the gold rush game will find that they unwisely spent a lot of resources in vain to manufacture or purchase small amounts of the once scarce lubricant that has now become cheap and plentiful.
Does this analogy work? How can it be refined or improved?
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posted by Moulton | 1:52 PM
18 Comments:
Though neither refinement nor improvement, I’ll mention that clockwork imagery is Satanic, always has been, from Dante down through Cervantes, Blake, Burroughs and Cormac McCarthy. That adversarial nature that produces friction and requires lubrication in the first place is the problem.
Have you seen this marvelous BBC documentary, Mechanical Marvels Clockwork Dreams?
No, Barry, I hadn't seen that before, but I enjoyed watching it. It does a good job of bringing into focus that built-in conflict at the heart of homeostasis, and at least hints at the latent political associations with mechanization--and the imitation of humanity. The theological implications that are of most import to me probably are a bit far afield from the POV of the art of automata.
Still, it occurs to me that where all this eventually goes it to the final--or at least most recent--technological development: that is to say the transcendence of the analogue cam technology to the digital.
There is no friction in a computer chip, or so it would seem to me. I imagine that there's still "motion" of some sort, but surely its as metaphorical or metaphysical as otherwise, at least to the point of making analogical motion of 3D objects moot.
So if no motion, then no friction, and with no friction, no need for lubrication. So money should altogether have done away with the need for itself as soon as digital technology took over the global economy.
It your above analogy/metaphor is useful, it is so for me since it points out that the flaw in the ointment is attempting to make money out of the anti-money value implicit in the bitcash realm.
Those early mechanical automata were primarily appreciated for their entertainment value.
But as the documentary reveals, the same technology gave rise to automated looms and automated computing.
Electronic computing is a whole lot more efficient than mechanical computing devices, but there remains an unavoidable cost of computing in terms of the energy it takes to drive the system.
Currently, living cells process DNA with astonishing energy efficiency, very close to the theoretical optimum. Our electronic computers are not quite as efficient, but we're getting there.
What BitCoin mining is doing is driving the computing industry to reduce the amount of electricity needed to compute the mathematical expressions embedded in the ledger-keeping machinery.
This is what is meant by viewing these mathematical inventions as a super-lubricant. Once the computing methodology and technology reach a new plateau of efficiency, it will supplant the current clumsy and costly methods of keeping the books for settling international trade.
At Thanksgiving dinner, yesterday, my younger daughter’s significant male other mentioned that he’d donated ten dollars to Wikipedia—then added that it wasn’t a real donation of real money, only a ten dollar bitcoin credit. I didn’t get into the conversation, other than to listen, but it made me think of your post in this respect.
Donating money to Wikipedia is like donating money to Satan.
That's more or less what I thought you'd think. I know there must be a happy medium between being an intellectual and spiritual Luddite and believing in the Coming Digital Paradise--but I haven't managed to find it yet.
But as Blake sez, the wheels that Ezekiel saw in the heavens were "wheels within Wheels" that spun freely, without touching, without friction, rather than "wheels without wheels" (cogs and cams).
I dunno about Digital Paradise.
The analog models are probably more elegant, in terms of pure mathematics.
The main reason that gears have cogs is because machinery has friction. Toothed gears solve the problem of slippage where it's not wanted (at the surface of the wheels) to overcome friction where it's not wanted (in the axles and bearings that hold the wheels in place).
T. S. Eliot more or less tried to do away with all that with his objective correlative of "the still point of the turning world" in his Four Quartets.
Not that that matters to any computer scientists, I suppose. Much like, I also suppose, that James Joyce's assumption that he put the final nail into the lid of the coffin--that is to say, gave the final turn of the screw to the coffin of--the novel. Yet, still, Virginia Woolf and Iris Murdoch continued to write them, long after the presumed end of that world.
I don't know if you've ever noticed a subtle undertaker's subtle turning of that screw during a funeral service--I have. It's an interesting thing. So subtle, in fact that one can never help noting, no matter how often one experiences it, the resonance with the language in chapter two of Genesis which notes that the serpent was the subtlest of God's creatures. It almost gives subtlety a bad name, one might say. But I think that would be overplaying reality's hand . . . .
And now I must prove that I'm not an android by mimicking some simulacra that some android dreamed up . . . .
Happy Solstice and related fetes, Barry. My thoughts are with you even if my words are not!
http://www.youtube.com/watch?v=gt8hqpGS3Wg
I expectantly await further post on this blog. (Who else is there, out there, I can talk to?)
I suppose it's colder in Kansas than it is in Boston, but what a brutal winter we are having. I feel like hibernating until spring.
I just celebrated my 69th birthday, if one can call it a celebration to be arriving at old age.
Perhaps my body and my brain will revive come the spring thaw.
Brutal, indeed. We've recently had about the largest snowstorm ever, for this particular bit of the prairie. And very cold, especially wind-chill factors.
I just turned 63, so I suppose I should feel like a youngster. I do, in fact feel like a youngster--I think I reached my full maturity at about age 6 and then leveled out. A very bright 6, mind you. But still.
In case you’re listening, Barry—I’ve been listening to Mussorgsky’s Pictures at an Exhibition a lot lately, in particular—in fact, exclusively—to the passage entitled “The Great Gate of Kiev.” This series of musical tone poems, inspired by an exposition of paintings, was—of course—originally conceived and composed by Mussorgsky only for the piano but is only known by the world, or such fragment of it as knows about it at all, as an orchestration of it offered by the archetypal elevator music composer, Maurice Ravel. In fact, I like Ravel’s orchestration a good deal—better than any of Ravel’sown works, to tell the truth. But the piano sketches Mussorgsky actually offered us as his own output still inspire me more—holistically, I suppose I mean to say. In any case, contemplating this music from memory—and, of course, listening to it anew—is the only way I can see my way through comprehending the current lay of the land, or—if one were forced to employ an even more precise diction—lie of the golf ball.
That piece of music was my very first "driveway moment" when I heard it on FM radio as I was driving home one day in grad school.
Baba Yaga’s Hut ain’t bad, either, come to think of it.
http://www.youtube.com/watch?v=kZkoW1Ta3ew
I first heard of the Baba Yaga story while reading a copy of a magazine my parents subscribed to for me when I was in elementary school—Jack and Jill: A Magazine for Boys and Girls was, as I recall, the name of the periodical. Anyhow, that particular story engraved itself into my developing psyche as sure as ever William Blake’s engraving tool carved in stone lyric or illustration. It wasn’t until I was in junior high that I encountered Mussorgsky’s Pictures at an Exhibition (the Ravel orchestration) because a girl I was desperately in love with at the time was deeply into it. By the time I was in college reading Jung for the first time and realizing what a pristine example of the evil/wise old crone Baby Yaga actually was—all I can say it, I realized experience was conspiring to create in me an appreciation of Jung’s theory of archetypes. In fact, to tell the truth, Jung, himself, never realized—I would hazard to conjecture—the extent to which the Baba Yaga mythologem represents a transition from negative anima figure to positive anima figure. I suspect that his Nordic (or Germanic—maybe even Swiss) context did not avail him of the central European flavors of the crone archetype. In any case, She (Baba Yaga) has always been for me a sort of “missing link” in the genealogy or phylogeny, maybe, of the female archetype, with respect to Jung’s concept.
All of which is, I suppose, to suggest that I think global affairs have reached a psychic crisis rooted in a collective failure to reintegrate the [inordinately] repressed land bridge between the [archetypally speaking] feminine negative and the feminine positive—between the bruja and the curandera—between the wicked witch and the good witch—between the Whore of Babylon and the Wise Old Crone.
I have no idea how Problem Solving Theory [to coin a phrase for the purposes of suggesting what I mean, only] or any other more STEM-grounded concept than those I have available to me would see such an issue. For me, though, this is the only problem: Resurrecting or Realizing or avoiding the denial of that absolute final problem: Unifying the {only apparent} contradiction between the Earth Mother (as in birth) and the Tooth Mother (as in—not mere “death” but, rather—burial).
Well, I guess you can see how much I miss the opportunity to ramble about such things since the old web watering holes dried up. I will probably resurrect my blog, but I don’t really know to what purpose. Colleagues who are still in the trenches often say, “Didn’t you have a blog?” to which I always answer, well yeah, but apart from a guy at MIT and an artist in Texas nobody ever went there. Some of they demure, and others admit freely—well they went there, they just didn’t feel worthy to comment. Imagine how loathsome that made me feel! Also many of my ex-students have wondered whatever happened to Dogs Heads in the Ice. Lord, they actually remembered the name! I was nonplussed. I’m torn, of course. As you know as well as anyone else—I want to be known but I want to be unknown, as well. I don’t know how to resolve this dilemma. I suspect that time, human interest, reality, and relative talent—among myriad other factors—will take care of this problem for me. Thanks for having paid attention to me. It matters to me, really. As much as anything, I imagine—in the long run.
Every currency to date has the problem that it both expedites trade, and it also stores value.
As long as bitcoins increase in value, they are an investment and their value as investment outweighs their value as lubricant for trade.
I've met people who believe that the money system will collapse in some sort of catastrophe. They want to be ready. One of the ways they try to be ready is to own lots of old silver dimes that they can use for money when the time comes. Silver dimes will have value because of the silver, and being stamped by the government you don't have to weigh them and test their purity. They said that gold and silver money was real money, and government paper scrip was not real money.
They had a convention, a big meeting where they sold buffalo jerky and homemade cider and leather goods etc to each other. I suggested that they could price their products in dimes -- real money -- and practice actually buying and selling things that way.
They said they couldn't do that. After some discussion they were able to explain why. They could only buy silver dimes from numismatics dealers, who charged a fee of close to 50% their true value. If they actually used the coins as money, any way they did it somebody would be getting screwed over that fee. It became apparent that they paid more than the real value for silver dimes because they expected the value to go up while they saved the dimes. They could not afford to use their only real money as money, because it was worth too much as an investment property.
And they priced the real value of things in government scrip.
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