Byrne: Why do the puzzling at all, rather than issuing a fixed amount of currency inflated at a predictable rate, with unique identifiers for each unit of currency?
This is an interesting idea, something like the idea that the Fed should follow a simple algorithm rather than trying to outguess markets. But the real question for beating bit gold is how do we do this without having to put full trust in third parties? If we can figure that out, we’ve come up with something better than bit gold. (“We” as usual on this blog being just whoever wants to explore the possibility, not “the government” :-)
Real trusted third parties, whether central banks or private note issuers, have always been tempted to overextend and overinflate, although occasionally the reverse happens. They are also vulnerable to government takeoever. Any algorithm, like the gold standard of old, is likely to be modified in a “crisis”: a trusted third party cannot make a strong credible commitment to keep running the same algorithm.
Possibly the money issuing algorithm could be run by many parties in parallel manner, a technique known as Byzantine agreement. Indeed, this is the same technique used to run the bit gold title registry. All participats would agree to (1) generate a fixed number of unique (large random) numbers each week, (or a number inflated by some predictable algorithm), and (2) assign each by some fair algorithm to one of participants. Each timestamped random number becomes a rare collectible, like postage stamps. I can see where this would work! It will take quite a bit of thinking over, though, as we’ve eliminated one of things that bit gold users can approximately prove, i.e. the original cost of the gold.
Byzantine security is far from perfect. In layman terms it just means that when everybody sends everybody else the same message, far more people have to be corrupted in order to fake the message than if the message is sent through one or a few people. Thus any given party is trusted only to a very small degree, but there is still that small degree of trust. There is a much stronger temptation here than with bit gold to inflate the currency, since it can now be costlessly “printed” instead of “mined”: it’s much more likely that a sufficiently large number of people could be corrupted. Still, it’s an intriguing idea worth developing even if for no other reason than it gives us another concrete plan to compare bit gold to.
as long as the marginal benefit of extra bits is lower than the marginal cost of running computers, people will keep their computers running when they’d otherwise shut them down, to easily arbitrage this difference.
I’m sorry, but this doesn’t make any sense to me: do you mean to say “higher than” rather than “lower than”?
Some computers are more energy efficient than others, some have more spare cycles than others, some algorithms and custom circuits will solve puzzles far faster than others, and so on, so there will be great differences in profitability, and as in gold mining the market will evolve towards only a few of the best specialists in puzzle solving making a reasonable profit. Indeed, the technological differences between chips and algorithms are likely to be far greater than with gold mines, which is why we can’t make the bits themselves fungible from week to week in the first place: the technology improves too fast.