web3/notes/neo-metallism.md

Neo-metallism

In Episode 1 of the series, Rufus Pollock and Stephen Diehl discuss the neo-metallist perspective on bitcoin and the concept of "digital" gold.

https://youtu.be/_o7pRFLzJHY

Topic

digital-gold

Episode Notes

• Gold has a historical precedent as money across cultures going back millenia.
• Multiple cultures have independently used it as currency.
• It’s metallurgical properties make it uniquely suited amongst the elements on the periodic table.
  • It’s relative abundance (although not excessive abundance) and distribution across the Earth’s crust make it rare enough to horde and access even for bronze age cultures.
  • It is stable at room temperature, doesn’t oxidize , easily detectable because of its glimmer and unique aesthetics, it is malleable without advanced smelting technology and is uniquely distinguishable from other metals.
  • It is probably the ONLY element on the periodic table that has all of these unique characteristics that could even be used for monetary purposes.
  • There is only a finite amount of it produced in supernova events and nuclear reactions, it is thus impossible to counterfeit or “debase” the supply.
• Advanced economies began stockpiling gold in government reserves and issuing notes against that float in redemption in gold by a government treasury.
• Gold theoretically acts as a universal numeraire across economic systems allowing interchange and commerce. It is a fixed “measuring sticking” for economic value that cannot be changed.
• It satisfies the definition of money, it can theoretically function as a unit of account, medium of exchange, and store of value. The only issue is that it incurs storage costs and is not easily transported because of its density and physicality.
• The Austrian school of economics regards gold as a (possibly only) example of “sound money” because it is immune to government intervention in the supply, effectively by the laws of physics. It cannot be “debased” or changed. (Aside: Of course, governments have found ways to "debase" gold-based currencies (usually by altering the coinage in various ways).
• Fiat money allows for both variable supply and demand with the goal of maintaining price stability and targeting a desired inflation amount which encourages productive enterprise. Historically, going all the way back to the invention of banking in Florence, there have been examples of mismanaged fiat currencies which have not managed either their supply or demand properly and spun into either deflationary or inflationary spirals and the public lost trust in the notes and their value become illusory.
• The Austrians assert that government intervention in “business cycles” is unnatural because free market forces will naturally correct supply and demand imbalances and that recessions and manias are both desirable and natural events.
• The hard monetarist perspective views any intervention in the supply dynamics of currencies as inevitably leading to inflation which is harmful to the free market and commerce.
  • Milton Friedman famously said, “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”
  • Centralized intervention in the markets turns economic influence into political power and financial rewards based on non-public information. This in turn is worse than centrally planned economies as it doesn’t allow for accurate price formation of assets and ultimately leads society into a loss of freedom, tyranny and a state of serfdom.
  • Money should be put in the hands of the free market, not the state.
  • Private money is not only desirable, it is inevitable because hard “commodity-based'' money will inevitably replace soft money.
  • Cantillon Effect - Inflation is not simply an average rise in prices. Prices do not rise proportionally or simultaneously. This results in arbitrary and unfair benefits to people who have not created any economic value and detriment to others who have not destroyed anything of economic value by destroying savings. Inflationary fiat money is thus a tax on people who sell their labor for wages and don’t hold assets and disincentivizes economic activity, encourages financial speculation, and results in market consolidation.
• The neometalist perspective is that with the advent of internet technology we should create artificially scarce “digital assets” which have the same economic properties as gold and use this as a foundation for a new digital economy and new financial system based on sound money.
• The 21 million tokens of bitcoin is like the supply of gold produced in the supernova reactions of the heavy metals in our solar system.
• Among cryptocurrencies there is a singular token - Bitcoin - which has a “universality” to it like gold because of its anonymous creator and it being the first to arrive on the market.
• Since there is no pre-mine or corporate entity behind bitcoin it has a unique distribution mechanism that rewarded early developers and speculators in a “fair distribution mechanism”, or at least as fair as possible before the crypto bubble and cambrian explosion of other tokens.
• Other tokens don’t have the claim to be “digital gold” because their economics favor different mechanisms of being used besides hoarding as a store of value.
• Bitcoin has proved itself resilient against attacks by malicious actors, market shocks, and nation states and thus is uniquely suited to replace gold in the future because it has similar properties without the storage costs.
• Satoshi participated in many online discussions about Austrian economics, including Rothbard, Mises and Hayak and the bitcoin whitepaper reflects Austrian ideas about credit, monetary theory and has a strong anti-state anti-interventionist stance.
• In fact bitcoin is a singular almost religious act of creation that can never be repeated in human history. It is the first “apolitical money” whose existence is contingent on the universality of mathematics rather than the political winds and circumstances of humans.

Concepts Covered

• gold-standard
• austrian-economics
• bitcoin
• bubble
• commodity
• use-value
• currency
• central-banks
• deflationary
• greater-fool-theory
• income-cashflows
• private-money
• sound-money
• speculation
• valuation-model
• value
• zero-sum-game

References

1. [@taleb_bitcoin_2021-1]
2. [@arnosti_bitcoin_2022]
3. [@golumbia_bitcoin_2015]
4. [@caferra_bitcoin_2021]
5. [@qin_bitcoins_2020]
6. [@bernanke_essays_2004]