repost
I’ve been thinking about something tonight that I wanted feedback on, like whether anybody can just tear it apart or give constructive crits. It was basically a riff off of the idea that Bitcoin has a lot of volatility partially because by design its value is volatile (in the classical sense). This isn’t my observation or anything, I’ve seen it in several places, but due to the fact BTC’s block difficulty increases with the hashrate (the material costs of BTC rise) but the reward is arbitrarily fixed to the halving schedule (ever mined block rewards some fixed amount of bitcoin for several years), then the material cost (the labor cost, or similar to Ricardo, in BTC’s own terms the “difficulty”) systematically deviates from the amount of coins produced. Basically, if BTC was like any other commodity the more invested in mining it would produce more of it. But instead, the value of each BTC just inflates because no matter how much you invest in mining it, you keep getting the same amount.
So BTC’s price is just a feedback loop of the speculation on it. There isn’t a normal regulating pressure towards a natural price like other commodities, instead the value just rises with the demand. With other commodities, investment as a response to high demand usually causes the price to fall back down to its value as more are produced at the relatively stable difficulty of its production in terms of labor (all else being equal, ie no big technical changes or exogenous shocks throwing off the conditions of production).
So this has a pretty simple fix, just make something like BTC’s block reward a ratio of its difficulty. The difficulty still rises to make blocks mined at regular intervals, but as the difficulty rises the blocks produce more coins. So that should put a downwards pressure on the price of each bitcoin, it will converge closer to its cost of production as miners sell their BTC on the market for more competitive profit margins between each other and across the wider market.
So there is the crypto and value-theory part, and leave aside for a moment the question of liquidity, why people would be buying and selling this crypto as a medium of exchange. First lets get the big vision in picture. Where does MMT come in? Well, I figured that if you had a sovereign issuer of the currency, like the proverbial “money printer”, then you could use the liquidity of the currency to make money “out of thin air”. But of course, you
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